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MB0037– International Business Management

Assignment Set-1

Q.1 a. How has liberalizing trade helped international business?


Ans:
The Benefits of Trade Liberalization
Policies that make an economy open to trade and investment with the rest of the world
are needed for sustained economic growth. The evidence on this is clear. No country in
recent decades has achieved economic success, this is clear. No country in recent
decades has achieved economic success, in terms of substantial increases in living
standards for its people, without being open to the rest of the world. In contrast, trade
opening (along with opening to foreign direct investment) has been an important element
in the economic success of East Asia, where the average import tariff has fallen from 30
percent to 10 percent over the past 20 years.

Opening up their economies to the global economy has been essential in enabling many
developing countries to develop competitive advantages in the manufacture of certain
products. In these countries, defined by the World Bank as the “new globalizers,” the
number of people in absolute poverty declined by over 120 million (14 percent) between
1993 and 1998.

There is considerable evidence that more outward-oriented countries tend consistently to


grow faster than ones that are inward-looking. Indeed, one finding is that the benefits of
trade liberalization can exceed the costs by more than a factor to 10. Countries that have
opened their economies in recent years, including India, Vietnam, and Uganda, have
experienced faster growth and more poverty reduction. On average, those developing
countries that lowered tariffs sharply in the 1980s grew more quickly in the 1990s than
those that did not.

Freeing trade frequently benefits the poor especially. Developing countries can ill-afford
the large implicit subsidies, often channeled to narrow privileged interests that trade
protection provides. Moreover, the increased growth that results from free trade itself
tends to increase the incomes of the poor in roughly the same proportion as those of the
population as a whole. New jobs are created for unskilled workers, raising them into the
middle class. Overall, inequality among countries has been on the decline since 1990,
reflecting more rapid economic growth in developing countries, in part the result of trade
liberalization.

The potential gains from eliminating remaining trade barriers are considerable. Estimate
of the gains from eliminating all barriers to merchandise trade range from US$250 billion
to US$680 billion per year. About two-thirds of these gains would accrue to industrial
countries. But the amount accruing the developing countries would still be more than
twice the level of aid they currently receive. Moreover, developing countries would gain
more from global trade liberalization as a percentage of their GDP than industrial
countries, because their economies are more highly protected and because they face
higher barriers.

Although there are benefits from improved access to other countries’ market countries
benefit most from liberalizing their own markets. The main benefits for industrial countries
would come from the liberalization of their agricultural markets. Developing countries
would gain about equally from liberalization of manufacturing and agriculture liberalization
in industrial countries because of the greater relative importance of agriculture in their
economies.

b. What are the merits and demerits of international trade?


Ans:
Advantages of International Trade
• Enhance your domestic competitiveness
• Increase sales and profits
• Gain your global market share
• Reduce dependence on existing markets.
• Exploit international trade technology
• Reduce dependence on existing market
• Exploit international trade technology
• Reduce dependence on existing markets.
• Exploit international trade technology
• Extend sales potential of existing products
• Stabilize seasonal market fluctuations
• Enhance potential for expansion of your business
• Sell excess production capacity
• Maintain cost competitiveness in your domestic market

Disadvantages to keep in mind:


• You may need to wait for long-term gains
• Hire staff to launch international trading
• Modify your product or packaging
• Develop new promotional material
• Incur added administrative costs
• Dedicate personnel for traveling
• Wail long for payment
• Apply for additional financing.
• Deal with special licenses and regulations.

Q.2 Discuss the impact of culture on International Business.


Ans:
Research on culture and IB is definitely a ‘growth’ area, because the business world is in
many ways becoming one. At least four themes are apparent in our state-of-the-art review
of current research trends in this area. First, much of previous research on culture and IB
has adopted what we view as a simplistic view of culture, which tends to examine the static
influence of few cultural elements in isolation from other cultural elements and contextual
variables. For instance, much of the research inspired by the hofstede dimensions falls into
this category, which, in our view, was instrumental in kick-starting the field. However, the
advances reviewed here are able to provide the conceptual and empirical basis for moving
into more complex conceptualizations of culture. The several new perspectives on culture
reviewed in this paper all point to multi-layer, multi-facet, and contextual and systems views
of culture. These views converge to suggest that culture entails much more than cultural
dimensions, and culture manifests itself in many levels and domains. Some cultural
elements are stable, whereas other is dynamic and changing. Sweeping statements about
cultures are useful to the extent that they provide and abstract framework for organizing
more situated description of the effects of cultures. A major challenge for the field is to
develop mid-range, dynamic framework of culture that is sensitive to their nuances in
different contexts. Second, a more complex conceptualization of culture can be an
antecedent, a moderator or a mediator, and a consequence, and its effects may be domain-
specific and are subjected to boundary conditions. Much of the research on culture and IB
tends to focus on main effects of culture. The immediate challenge for the field is to map
out other more complex effects of culture systematically and integrate these effects
routinely into substantive theories, so that culture elements constitute a major type of
building block for theoretical models in IB. A recent, highly visible attempt in this direction is
the GLOBE project discussed before, which attempts of build a model of leadership with
culture elements as integral elements of the model. Third, the plea for studying the effects
of culture in conjunction with socio-economic-political variable is not new, but our review
has provided specific theoretical rationale and concrete directions for such research efforts.
We have shown that cultural change is intertwined with socioeconomic – political variable
and that these contextual variables may also add to, moderate in IB research to take the
effects of such variables into account, and future research needs to evaluate the effects of
culture in conjunction with the impact of socio-economic political conditions.

Culture may relate to socioeconomic-political variables in complex ways, and a simple


considerations of their joint effects is inadequate. A more complete picture of the force
impinging upon IB calls for a precise description of these complex relationships.

Finally, a multi-method approach to research has been advocated for decades, and for
research on culture and IB, its importance cannot be exaggerated. Most research in IB
reach is co-relational in nature, and we are more or less ignorant when it comes to the
causal processed involved. Experimentation provides a powerful tool for probing causal
relationships, and we need both co-relational experimental approaches to enrich our
understanding of IB phenomena, and to develop effective practical advice for international
managers. Culture is such a fuzzy concept that we need to probe it with all the tools we
have at our disposal, and we look forward to the bloom of multi- method approaches for
moving the field of international business research forward by leaps and bounds.

Q.3.a. Explain the brief structure of WTO.


Ans:
Structure of WTO
The WTO has nearly 150 members, accounting for over 97% of world trade. Around 30
other are negotiating membership.
The WTO’s top-level decision-making body is the Ministerial Conference, which meets at
least once every two years.
Below this the General Council (normally ambassadors and heads of delegation in Geneva,
but sometimes officials sent from member’s capitals), which meet several, times a year in
the Geneva headquarters. The General Council also meets as the Trade Policy Review
Body and the Dispute Settlement Body.

At next level, the Goods Council, Services Council and Intellectual Property (TRIPS) council
reports to the General Council.
Numerous specialized committee, working groups and working parties deal with the
individual agreements and other areas such as the environment, development, membership
applications and regional trade agreements.

Secretariat

The WTO Secretariat, based in Geneva, has around 600 staff and is headed by a director-
general. Its annual budget is roughly 160 million Swiss francs; It does not have branch
office outside Geneva. Since decisions are taken by the members themselves, the
Secretariat does not have the decision-making role that other international bureaucracies
are given with. The secretariat main duties are to supply technical support for the various
councils and committee and the ministerial conferences, to provide technical assistance for
developing countries to analyze world trade, and to explain WTO affairs to the public and
media.
The secretarial also provides some forms of legal assistance in the dispute settlement
process and advices government wishing to become members of the WTO.

Highest authority: the Ministerial Conference

So, the WTO belongs to its members. The countries make their decisions through various
councils and committee, whose membership consists of all WTO members, Topmost is the
ministerial conference which has to meet at least once every two years. The Ministerial
Conference can take decisions on all matters under any of the multilateral trade
agreements.

Second level: General Council in three guises


Day-to-day work in between the ministerial conferences is handled by three bodies.
• The General Council
• The Dispute Settlement Body
• The Trade Policy Review Body
Third level: councils for each broad area of trade, and more back to top
Three more councils, each handling a different broad area of trade, report to the General
Council:
• The Council for Trade in Goods (Goods Council)
• The Council for Trade in Services (Services Council)
• The Council for Trade – Related Aspects of Intellectual Property Rights
(TRIPS Council)

Fourth level: down to the nitty- gritty

Each of the higher-level councils has subsidiary bodies. The Goods Council has 11
committees dealing with specific subjects (such as agriculture, market access, subsidies,
anti-dumping measures and so on). Again, these consist of all member countries. Also
reporting to the Goods Council is the Textiles Monitoring Body, which consists of a
chairman and 10 members acting in their personal capacities, and groups dealing with
notifications (government the WTO about current and new policies of measures) and state
trading enterprises.

The Services Council’s subsidiary bodies deal with financial services, domestic regulations,
GATS rules and specific commitments,
At the General Council level, the Dispute Settlement Body also has two subsidiaries: the
dispute settlement “ Panels” of experts appointed to adjudicate on unresolved disputes, and
the Appellate Body that deals with appeals.

b. Highlight the drawbacks of GATT.


Ans:
Drawbacks of GATT
Given its provisional nature and limited field of action, the success of GATT in promoting
and securing the liberalization of much of world trade over 47 year is incontestable.
Continual reductions in tariffs alone helped spur very high rates of world trade growth –
around 8 per cent a year on average during the 1950s and 1960s. And the momentum of
trade liberalization helped ensure that trade growth consistently out-paced production
growth throughout the GATT era. The rush of new members during the Uruguay Round
demonstrated that the multilateral trading system, as then represented by GATT, was
recognized as an anchor for developing and an instrument of economic and trade reform.

The limited achievement of the Tokyo Round, outside the tariff reduction result, was a sign
of difficult time to come. GATT’s success in reducing tariffs to such a low level, combined
with a series of economic recessions in the 1970s and early 1980s, drove government to
devise other form of protection for sectors facing increased overseas competition. High
rates of unemployment and constant factory closures led government in Europe and North
America to seek bilateral market-sharing arrangements with competitors to embark on a
subsidies race to maintain their holds on agricultural trade. Both these changes undermined
the credibility and effectiveness of GATT.
Apart from the deterioration in the trade policy environment, it also became apparent by the
early 1980s that the General Agreement was no longer as relevant to the realities of world
trade as it had been in the 1940s. For a start, world trade and become far more complex
and important than 40 years before: the globalization of the world economy was underway,
international investment was exploding and trade in services – not covered by the rules of
GATT – was of major interest to more and more countries and, at the same time, closely
tied to further increase in world merchandise trade. In other respects, the GATT had been
found wanting: for instance, with respect to agriculture where loopholes in the multilateral
system were heavily exploited – and effort at liberalizing agricultural trade met with little
success – and in the textiles and clothing sector where an exception to the normal
disciplines of GATT was negotiated in the form of the Multi-fibre Arrangement. Even the
institutional structure of GATT and its dispute settlement system were giving cause for
concern.
Together, these and other factors convinced GATT members that a new effort to reinforce
and extend the multilateral system should be attempted. That effort resulted in the Uruguay
Round.

Q.4. a. Give a short note on the regional economic integration.


Ans:
Regional Economic Integration
Regional integration can take many forms, and nowhere is this more evident than in the
vastly different integration processes taking place in the regions of Europe and East Asia.
The subject of this paper is regional integration as it has developed in East Asia with a
focus on the drivers of that integration. While the paper is not intended as a direct
comparison of integration in East Asia and Europe, it will include some comparisons
between the two regions.

Integration in East Asia has progressed very slowly and is still in an early stage despite that
the process has continued for decades. In fact, it could be said that the process began
centuries ago- even as far back as the 15the century. By comparison, European integration
has progressed steadily and has gradually deepened over the last 50 year to reach an
advanced stage today with a common currency and well-developed regional institutions.
Thus, the speed of progression and the level integration attained in two regions are quite
dissimilar.
In addition to these differences, the drivers behind the integration process in each region
are different. In Europe, the origins of integration have been institutional in nature, and the
development of institutions has been prominent throughout the process. Thus, regional
institutions have been the driving force behind integration in Europe. In EAST Asia, the
development of regional institutions has also occurred; however progress in this area has
been slow and the few existing institutions are fairly weak and ineffective.
Nevertheless, regional integration is taking place in East Asia, but the driving force the
market rather than policy of institutions. Corporations and the production networks they
have established are driving integration in East Asia.

b. Mention the benefits of WTO.


Ans:
BENEFITS OF WTO

1. The system helps promote peace

This sounds like an exaggerated claim, and it would be wrong to make too much of it.
Nevertheless, the system does contribute to international peace, and if we understand why,
we have a clearer picture of what the system actually does.

2. Disputes are handled constructively

As trade expands in volume, in the number of products traded, and in the numbers of
countries and companies trading, there is a greater chance that disputes will arise. The
WTO system helps resolve these disputes peacefully and constructively.

3. Rules make life easier for all

The WTO cannot claim to make all countries equal. But it does reduce some inequalities,
giving smaller countries more voice, and at the same time freeing the major powers from
the complexity of having to negotiate trade agreements with each of their numerous trading
partners.

4. Freer trade cuts the costs of living


We are all consumers. The prices we pay for our food and clothing, our necessities and
luxuries, and everything else in between, are affected by trade policies.

5. It provides more choice of products and qualities

Think of all the things we can now have because we can import them: fruits and vegetables
out of season, foods, clothing and other products that used to be considered exotic, cut
flowers from any part of the world, all sorts of household goods, books, music, movies, and
so on.

6. Trade raises incomes

Lowering trade barriers allows trade to increase, which adds to incomes — national
incomes and personal incomes. But some adjustment is necessary.

7. Trade stimulates economic growth

Trade clearly has the potential to create jobs. In practice there is often factual evidence that
lower trade barriers have been good for employment. But the picture is complicated by a
number of factors. Nevertheless, the alternative — protectionism — is not the way to tackle
employment problems.

8. The basic principles make life more efficient

Many of the benefits of the trading system are more difficult to summarize in numbers, but
they are still important. They are the result of essential principles at the heart of the system,
and they make life simpler for the enterprises directly involved in trade and for the
producers of goods and services.

9. Governments are shielded from lobbying

The GATT-WTO system which evolved in the second half of the 20th Century helps
governments take a more balanced view of trade policy. Governments are better placed to
defend themselves against lobbying from narrow interest groups by focusing on trade-offs
that are made in the interests of everyone in the economy.

10. The system encourages good government

Under WTO rules, once a commitment has been made to liberalize a sector of trade, it is
difficult to reverse. The rules also discourage a range of unwise policies. For businesses,
that means greater certainty and clarity about trading conditions. For governments it can
often mean good discipline.

Q. 5 a. Explain five-element product wave model.


Ans:
The wave model employs design engineering, process engineering, product Marketing,
production, and end-of-life activities as elements. The first wave is associated with the “A”
version of a product or services, and survives through the traditional PLC introduction and
growth phases. A second wave begins with the “B” version, the markedly improved second
model. It starts just before the traditional life cycle maturity stage and lives until sales
decline to a point at which an EOL decision must be made.
Note that design engineering has peak of activity level at each upgrade. Process
engineering activity shadows that of design engineering, as system changes will be
contemplated and made to facilitate the changes made in the product or service. Product
marketing also has activity level spikes that closely match engineering design activity,
lagged somewhat for product introduction. Production has one activity peak that result from
demand management and production planning through master production scheduling.

Finally, the EOL curve peaks at each redesign. The last wave begins shortly before original
production ceases and ends when the product is no longer manufactured or supported by
the EOL Company or division. The EOL element requires that a decision be made about
the preceding version at each major redesign: continue production, make a short-term run
of spares, keep blueprints active so that parts can be made as ordered or discontinue
production.

The five element product wave, or FPW, uses trigger point, rather than time, as the horizon
over which the element curves vary. Changes in magnitude, represented by the vertical
axis, result from differing activity levels within the five elements. Simple changes in levels of
dollar or unit product sales, in and of themselves, do not necessarily determine the triggar
point. Rather, the varying activity levels are a direct result of product introductions and
redesign that, from the outset, must take into account company strategy, core capabilities,
and the state of the competitive environment. For example, a product with strong sales may
be redesigned in a preemptive strike against competitors, further distancing that product
from the competition, such as with Caterpillar’s innovative high-drive bulldozers.

The five-element wave is grounded in reality becomes apparent when considering the
recent research that suggests product introducing cycles are being compressed. Bayus
(1194) claims that knowledge is being applied faster, resulting in increasing levels of new
product introductions. Yet since product removals are not keeping pace with introduction,
there are an increasing number of product variations on the market. Slater (1993) observes
that product life cycles are growing shorter and shorter. Vesey (1992) reports that the
strategy for the 1990s is speed to market and discusses the pressures the market is
exerting to shorten product introduction lead times.

Regardless of whether life cycles are actually being compressed or knowledge is simply
being applies faster, it is apparent that firm are increasing the speed with which they bring
their products to market. The effect of this is a compression of the design engineering,
process engineering, production, and product marketing elements of the wave model. (The
EOL curve may remain unchanged because accelerated introductions do not necessarily
affect EOL efforts.) The five-element wave clearly shows the inefficiency of traditional “
over-the-wall” systems as speed to market increases. As the elements compress. More and
more information is thrown over the wall. Recipients find themselves with less and less time
to take action. Taken to the extreme, in-baskets, phone lines, conference take action.
Taken to the extreme, in-baskets, phone lines, conference rooms, desks, and floors are
soon grid locked and littered with unanswered correspondence the things to do. Forget
quality; production itself grinds to a halt.

The solution is to maximize the advantage of the relationships within the five-elements
wave and work in concurrent teams, as illustrated in Figure 6. That way, responsibility is
shared throughout the system. Members from each discipline optimize the system. The
method tears down barriers between departments and speeds the introduction process,
thus decreasing costs. The focal point become the customer, rather that the task. The
system is totally interactive and bound together. Each element is connected to all of the
others and is focused on the customer.

The strength of the five-elements product wave is the fact that it illuminates critical decision
points in the life of a product or services. The interrelationships of the elements clearly
illustrate the benefit of working product introductions, design changes, end-of-life decisions
in teams. This is particularly true in today’s rapidly compressing environment of speeding
products to market. Furthermore, the model is flexible and may be expanded or contracted
to include those functional areas relevant to the production team. Thus whether a given
firm’s products is a services or a manufactured good, the five-elements wave is a powerful
tool that can be deployed to accelerate effective decision making in markets demanding
ever-increasing levels of speed and agility.

b. What do you mean by globalization?


Ans:
Globalization
Economic “ globalization is a historical process, the result of human innovation and
technological progress. It refers to the increasing integration of economies around the
world, particularly through trade and financial flows. The term sometimes also refers to the
movement of people (labor) and knowledge (technology) across international borders.
There are also broader cultural, political and environmental dimensions of globalization that
are not covered here.

AT its mot basic, there is nothing mysterious about globalization. The term has come into
common usage since the 1980s, reflecting technological advances that have made it easier
and quicker to complete international transactions – both trade and financial flows. It refers
to and extension beyond national borders of the same market forces that have operated for
centuries at all levels of human economic activity – village, urban industries, or financial
centers.
Markets promote efficiency through competition and the division of labor – the
specialization that allows people and economies to focus on what they do best. Global
markets offer greater opportunity for people to tap into more and larger markets around the
world. It means that they can have access to more capital flows, technology, cheaper
imports, and larger export markets. But markets do not necessarily ensure that the benefits
of increased efficiency are shared by al. Countries must be prepared to embrace the
polices needed, and in the case of the poorest countries may need the support of the
international community as they do so.

Q. 6.Give some examples of companies doing international business and discuss


how they have they have managed their business in the international markets.
Ans:

Overseas business by a company refers to undertaking and expanding its commercial


activities across the national borders. It encompasses diverse nature of activities like
trading (exporting and importing its goods and services); manufacturing and marketing as
well as outsourcing for production and marketing. The main reason for making such
overseas investments is to explore business opportunities abroad and take advantage of
such opportunities. Foreign markets in both developed and developing countries provide
enormous growth opportunities. For example, a number of Indian pharmaceuticals firms
have achieved a much faster growth of their overseas business. The various other reasons
for investing abroad are:-

 Competition is the main driving force behind internationalism. Until liberalization in


1991, the Indian economy was a highly protected market. Not only that the domestic
producers were protected from foreign competition, but also domestic competition
was restricted by several policy induced entry barriers. The economic liberalization and
globalization has ushered in increased competition both domestically and
internationally.
 Government policies and regulations also motivate internationalism. Many
Governments offer a number of incentives and other positive support in order to
encourage foreign investments. A restrictive domestic Government policy, which limits the
scope of business expansion in domestic country and undermines their
competitiveness, is also an important factor for entering overseas markets.
 Domestic demand constraints drive many companies to expand their markets
beyond the national borders. If the domestic market potential is fully tapped, the
market for such products tends to be saturated. Another type of domestic market
constraint arises from the scale-economies. The technological advances has
increased the size of optimal scale of operations in many industries, thus making it
necessary to have foreign markets in addition to domestic ones. Domestic recession
often provokes the companies to explore foreign markets.

 It may also help the company to improve its domestic business, increase its market
share and help establish the image of the company.

Business strategy relating to overseas investment differs from that of domestic investment
due to the differences in business environment:-

 The political environment includes the characteristics and policies of the political
parties, nature of the constitution and the governmental system. These factors vary
considerably between different nations.
 The legal system that exists in different countries across the world may be classified
into common law, civil law or code law and theocratic law. Common law is based on
tradition, past practices and legal precedents set by the courts through interpretation
of statutes, legal legislations and past rulings. Code law, on the other hand, is based
on an all-inclusive system of written rules of law. While the theocratic law is based on
religious precepts. These differences in the legal framework play a very important
role in overseas investment strategy.
 Cultural differences are one of the most important factors influencing international
investments. The cultural or social environment of any country encompasses
language, religion, customs, traditions and beliefs, tastes and preferences, social
stratification, social institutions, etc.

 Economic environment also varies from country to country. It broadly includes the
nature and level of development of the economy, economic resources, size of the
economy, economic systems and economic policies, economic conditions, trends in
various economic indicators like national income, per capita income, foreign trade,
inflation rate, industry production, etc.

However, a firm which plans to invest abroad has to make a series of strategic decisions:-

 The first decision a company has to make is whether to expand its business abroad
or not. This decision is based on consideration of number of important factors like: -

• Present and future opportunities

• Present and future market opportunities

• The resources of the company like skill, experience, financial support,


production and marketing capabilities, etc.
• Company's objectives.
 Once the company has decided to invest abroad, the next important decision is the
selection of the most appropriate market. For this, a thorough analysis of the
potentials of the various overseas markets and their respective marketing
environment is essential.

 The next important decision relates to determining the appropriate modes of entering
those foreign markets. The important foreign market entry strategies are:-

• Exporting: is the most traditional mode of entering a foreign market. It is an


appropriate strategy when any of the following conditions prevail:- (i) the
volume of foreign business is not large enough to justify production in the
foreign market; (ii) cost of production in the foreign market is high; (iii) the
foreign market is characterized by production bottlenecks like infrastructural
problems, problems with materials supplies, etc; (iv) there are political or other
risks of investment in the foreign country; (v) the company has no permanent
interest in the foreign market concerned or that there is no guarantee of the
market available for a long period; (vi) foreign investment is not favoured by
the foreign country concerned; (vii) licensing or contract manufacturing is not
a better alternative.

• Licensing and Franchising:- are easy ways of entering the foreign markets.
Under international licensing, a firm in one country (the licensor) permits a
firm in another country (the licensee) to use its intellectual property (such as
patents, trade marks, copyrights, technology, technical know-how, marketing
skill or some other specific skill). The monetary benefit to the licensor is the
royalty or fees, which the licensee pays.

Franchising is a form of licensing in which a parent company (the franchiser)


grants another independent entity (the franchisee) the right to do business in
a prescribed manner. This right can take the form of selling the franchiser's
products, using its name, production and marketing techniques, or general
business approach. One of the common forms of franchising involves the
franchiser supplying an important ingredient for the finished product, like the
Coca Cola supplying the syrup to the bottlers.

• Management Contracting: - is one in which the supplier brings together a


package of skills that will provide an integrated service to the client without
incurring the risk and benefit of ownership. It enables a firm to commercialise
existing know-how that has been built up with significant investments and
frequently the impact of fluctuations in business volumes can be reduced by
making use of experienced personnel who otherwise would have to be laid
off. Under it the firm providing the management know-how may not have any
equity stake in the enterprise being managed.

• Turnkey Contracts: - are common in international business in the supply,


erection and commissioning of plants like in the case of oil refineries, steel
mills, cement and fertilizer plants, etc. A turnkey operation is an agreement by
the seller to supply a buyer with a facility fully equipped and ready to be
operated by the buyer's personnel, who will be trained by the seller.

• Fully Owned Manufacturing Facilities: - Companies with long term and


substantial interest in the foreign market normally establish wholly owned
manufacturing facilities there. It provides the firm with complete control over
production and quality. It does not have the risk of developing potential
competitors as in the case of licensing and contract manufacturing.
• Assembly Operations: - A manufacturer who wants to take advantages that
are associated with overseas manufacturing facilities and yet does not want to
go that far may establish overseas assembly facilities in selected markets. It
represents a cross between exporting and overseas manufacturing. It is an
ideal strategy when there are economies of scale in the manufacture of parts
and components and when assembly operations are labour-intensive and
labour is cheap in the foreign country.

• Joint ventures: - is a very common strategy of entering the foreign market. It


represents a combination of subsets of assets contributed by two (or more)
business entities for a specific business purpose and a limited duration. It
generally has the following characteristics:- (i) contribution by partners of
money, property, effort, knowledge, skill or other assets to the common
undertaking; (ii) joint property interest in the subject matter of the venture; (iii)
right of mutual control or management of the enterprise; (iv) right to share in the
property.

• Mergers and Acquisitions:- have been a very important market entry


strategy as well as expansion strategy for maximization of a company's growth
by enhancing its production and marketing operations. They are being used in
a wide array of fields such as information technology, telecommunications,
and business process outsourcing as well as in traditional businesses in order
to gain strength, expand the customer base, cut competition or enter into a
new market or product segment.

• Strategic Alliance: - has been becoming more and more popular in


international business. This strategy seeks to enhance the long-term
competitive advantage of the firm by forming alliance with its competitors,
existing or potential in critical areas, instead of competing with each other. It
helps a company to leverage critical capabilities, increase the flow of
innovation and increase flexibility in responding to market and technological
changes.

• Counter trade: - has been successfully used by a number of companies as an


entry strategy. It is a form of international trade in which certain export and
import transactions are directly linked with each other and in which import of
goods are paid for by export of goods, instead of money payments. Its main
attraction is that it can give a firm a way to finance an export deal when other
means are not available. For example, Pepsico gained entry to the USSR by
employing this strategy.

Hence, a firm typically passes through different stages in its transition from local firm to a
transnational firm. That is, a firm, which is entirely domestic in its activities normally, passes
through different stages of internationalization before it becomes a truly global one. A firm
may start exporting its products on an experimental basis and if the results are satisfying, it
would enlarge its international operations and in due course it would establishes its offices,
branches or subsidiaries or joint ventures abroad. This expansionary process may also be
characterized by increasing the product mix and the number of market segments and the
number of countries of operation. Thus, the company becomes multinational or global. In
other words, for many firms overseas business initially starts with a low degree of
commitment and involvement, and gradually develops into a global business organization
MB0037 – International Business Management
Assignment Set- 2

Q.1 Evaluate the monetary system and currency markets in international business
management.
Ans:

Q.2 a.Mention the different entry strategies to enter international markets.


Ans:
Methods of entry
With rare exceptions, products just don’t emerge in foreign markets overnight –a firm has to
build up a market over time. Several strategies, which differ in aggressiveness, risk, and the
amount of control that the firm is able to maintain, are available
• Exporting is a relatively low risk strategy in which few investments are made in the
new country. A drawback is that, because the firm makes few if any marketing
investment in the new country, market share may be below potential. Further, the
firm, by not operating in the country, learns less about the market (What do
consumers really want? which kind of advertising campaigns are most successful?
What are the most effective method of distribution?) If and importer is willing to do a
good job of marketing, this arrangement may represent a “win-win” situation, but it
may be more difficult for the firm to enter on its own later if it decides that larger
profits can be made within the country.
• Licensing and franchising are also low exposure methods of entry – you allow
someone else to use your trademarks and accumulated expertise. Your partner puts
up the money and assumes the risk. Problems here involve the fact that you are
training a potential competitor and that you have little control over how the business
is operated. For example, American fast food restaurants have found that foreign
franchisees often fail to maintain American standards of cleanliness. Similarly, a
foreign manufacturer may use lower quality ingredients in manufacturing a brand
based on premium contents in the home country.
• Contract manufacturing involves having someone else manufacture products while
you take on some of the marketing efforts yourself. This saves investment, but again
you may be training a competitor.
• Direct entry strategies, where the firm either acquires a firm or builds operations
“from scratch” involve the highest exposure, but also the greatest opportunities for
profits. The firm gains more knowledge about the local market and maintains greater
control, but now has a huge investment, in some countries, the government may
expropriate assets without compensation, so direct investment entails an additional
risk. A variation involves a joint venture, where a local firm puts up some of the
money and knowledge about the local market.

b. How has E-commerce helped in international marketing?


Ans:

Electronic commerce or e-commerce refers to a wide range of online business activities for
products and services. It also pertains to “any form of business transaction in which the
parties interact electronically rather than by physical exchanges or direct physical contact.”

E-commerce is usually associated with buying and selling over the Internet, or conducting
any transaction involving the transfer of ownership or rights to use goods or services
through a computer-mediated network. Though popular, this definition is not comprehensive
enough to capture recent developments in this new and revolutionary business
phenomenon. A more complete definition is: E-commerce is the use of electronic
communications and digital information processing technology in business transactions to
create, transform, and redefine relationships for value creation between or among
organizations, and between organizations and individuals.

Q.3 a. Explain Bill of Lading and Letters of credit.

Bill of lading

A bill of lading (sometimes referred to as a BOL,or B/L) is a document issued by a carrier


to a shipper, acknowledging that specified goods have been received on board as cargo for
conveyance to a named place for delivery to the consignee who is usually identified. A
thorough bill of lading involves the use of at least two different modes of transport from
road, rail, air, and sea. The term derives from the verb "to lade" which means to load a
cargo onto a ship or other form of transportation.

A bill of lading can be used as a traded object. The standard short form bill of lading is
evidence of the contract of carriage of goods and it serves a number of purposes:

• It is evidence that a valid contract of carriage, or a chartering contract, exists, and it


may incorporate the full terms of the contract between the consignor and the carrier
by reference (i.e. the short form simply refers to the main contract as an existing
document, whereas the long form of a bill of lading (connaissement intégral) issued
by the carrier sets out all the terms of the contract of carriage);
• It is a receipt signed by the carrier confirming whether goods matching the contract
description have been received in good condition (a bill will be described as clean if
the goods have been received on board in apparent good condition and stowed
ready for transport); and
• It is also a document of transfer, being freely transferable but not a negotiable
instrument in the legal sense, i.e. it governs all the legal aspects of physical carriage,
and, like a cheque or other negotiable instrument, it may be endorsed affecting
ownership of the goods actually being carried. This matches everyday experience in
that the contract a person might make with a commercial carrier like FedEx for
mostly airway parcels, is separate from any contract for the sale of the goods to be
carried; however, it binds the carrier to its terms, irrespectively of who the actual
holder of the B/L, and owner of the goods, may be at a specific moment.

Letter of credit

Standard, commercial letter of credit (LC) is a document issued mostly by a financial


institution, used primarily in trade finance, which usually provides an irrevocable payment
undertaking.

The letter of credit can also be source of payment for a transaction, meaning that
redeeming the letter of credit will pay an exporter. Letters of credit are used primarily in
international trade transactions of significant value, for deals between a supplier in one
country and a customer in another. In such cases the International Chamber of Commerce
Uniform Customs and Practice for Documentary Credits applies. They are also used in the
land development process to ensure that approved public facilities (streets, sidewalks,
storm water ponds, etc.) will be built. The parties to a letter of credit are usually a
beneficiary who is to receive the money, the issuing bank of whom the applicant is a client,
and the advising bank of whom the beneficiary is a client. Almost all letters of credit are
irrevocable, i.e., cannot be amended or canceled without prior agreement of the beneficiary,
the issuing bank and the confirming bank, if any. In executing a transaction, letters of credit
incorporate functions common to giros and Traveler's cheques. Typically, the documents a
beneficiary has to present in order to receive payment include a commercial invoice, bill of
lading, and documents proving the shipment was insured against loss or damage in transit.
However, the list and form of documents is open to imagination and negotiation and might
contain requirements to present documents issued by a neutral third party evidencing the
quality of the goods shipped, or their place of origin.

b.What is UNCITRAL and what it does? (2 marks)

Ans:

The United Nations Commission on International Trade Law (UNCITRAL) was


established by the United Nations General Assembly by its Resolution 2205 (XXI) of 17
December 1966 "to promote the progressive harmonization and unification of international
trade law.UNCITRAL carries out its work at annual sessions held alternately in New York
City and Vienna.

Uncitral is:

• Coordinating the work of organizations active and encouraging cooperation among


them.
• Promoting wider participation in existing international conventions and wider
acceptance of existing model and uniform laws.
• Preparing or promoting the adoption of new international conventions, model laws
and uniform laws and promoting the codification and wider acceptance of
international trade terms, provisions, customs and practice, in collaboration, where
appropriate, with the organizations operating in this field.
• Promoting ways and means of ensuring a uniform interpretation and application of
international conventions and uniform laws in the field of the law of international
trade.
• Collecting and disseminating information on national legislation and modern legal
developments, including case law, in the field of the law of international trade.
• Establishing and maintaining a close collaboration with the UN Conference on Trade
and development.
• Maintaining liaison with other UN organs and specialized agencies concerned with
international trade.

Q.4. Explain the importance of STP in international markets.


Ans:
The Importance of STP
Segmentation is the cornerstone of marketing-almost all marketing efforts in some way
relate to decisions on who to serve or how to implement positioning through the different
parts of the marketing mix. For example one’s distributions strategy should consider where
one’s target market is most likely to buy the product, and a promotional strategy should
consider the target’s media habits and which kinds of messages large markets, to try to be
“all things to all people,” this is a dangerous strategy because the firm may lose its
distinctive appeal to its chosen segments.
In terms of the “big picture,” members of a segment should generally as similar a possible
to each other on a relevant dimension (e.g., preference for quality vs. low price) and as
different as possible from members of other segment. That is, members should respond in
similar ways to various treatment (such as discounts or high service) so that common
campaigns can be aimed at segment members, but in order to justify a different treatment
of other segments, their members should have their own unique response behavior.

Approaches to global segmentation

There are two main approaches to global segmentation. At the macro level, countries are
seen as segments, given country aggregate characteristics and statistics tend to differ
significantly. For example, there will only be a large market for expensive pharmaceuticals
in countries with certain income levels, and entry opportunities into infant clothing will be
significantly greater in countries with large and growing birth-rates ( in countries with
smaller birth-rates or stable to declining birth-rates entrenched competitors will fight hard to
keep the market share).

There are, however, significant differences within countries. For example, although it was
though that the Italian market would demand “no frills” inexpensive washing machines while
German consumers would insist on high quality, very reliable ones, it was found that more
units of the inexpensive kind were sold in Germany than in Italy- although many German
consumers fit the predicted profile, there were large segment difference within that country.
At the micro level, where one looks at segments within countries. Two approaches exist,
and their use often parallels the firm’s stage of international involvement intra-market
segmentation involves segmenting each country’s market from scratch-i.e. And American
firm going into the Brazilian market would do research to segment Brazilian consumers
without incorporating knowledge of U.s. buyers. In contrast, inter-marketing segmentation
involves the detection of segment that exist in another and that the sizes of the segment
may differ significantly. For example, there is a huge small car segment in Europe, while it
is considerably smaller in the U.S.

Inter- market segmentation entails several benefits. The fact that products and promotional
campaigns may be used across markets introduces economies of scale, and learning that
has been acquired in one market may be used in another – e.g., a firm that has been
serving a segment of premium quality cellular phone buyers in one country can put its
experience to use in another country that features that same segment. (Even though
segments may be similar across the cultures, it should be noted that it is still necessary to
learn about the local market. For example, although a segment common across two
countries may seek the same benefits, the cultures of each country may cause people to
respond differently to the “ hard sell” advertising that has been successful in one).

The international product life cycle suggests that product adoption and spread in some
markets may lag significantly behind those of others. Often, then, a segment that has
existed for some time in an “ early adopter” country such as the U.S. or Japan will emerge
after several years (or even decades) in a “late adopter” country such as Britain or most
developing countries. (We will discuss this issue in more details when we cover the product
mix in the second half of the term).

Positioning across markets

Firms often have to make a trade off between adapting their products to the unique
demands of a country market or gaining benefits of standardization such as cost savings
and the maintenance of consistent global brand image. There are no easy answers here.
On the one hand, McDonald’s has spent a great deal of resources to promote its global
image; on the other hand, significant accommodations are made to local tastes and
preferences – for example , while serving alcohol in U.S. restaurants would go against the
family image of the restaurant carefully over several decades, Mc Donald’s has
accommodated this demand of European patrons.

Q. 5 a. Write a short note on branding and trademarks.


Ans:
BRANDING

A brand is the identity of a specific product, service, or business. A brand can take many
forms, including a name, sign, symbol, color combination or slogan. The word brand began
simply as a way to tell one person's cattle from another by means of a hot iron stamp. A
legally protected brand name is called a trademark. The word brand has continued to
evolve to encompass identity - it affects the personality of a product, company or service.

People engaged in branding seek to develop or align the expectations behind the brand
experience, creating the impression that a brand associated with a product or service has
certain qualities or characteristics that make it special or unique. A brand is therefore one of
the most valuable elements in an advertising theme, as it demonstrates what the brand
owner is able to offer in the marketplace. The art of creating and maintaining a brand is
called brand management. Orientation of the whole organization towards its brand is called
brand orientation.

Careful brand management seeks to make the product or services relevant to the target
audience. Brands should be seen as more than the difference between the actual cost of a
product and its selling price - they represent the sum of all valuable qualities of a product to
the consumer. There are many intangibles involved in business, intangibles left wholly from
the income statement and balance sheet which determine how a business is perceived.
The learned skill of a knowledge worker, the type of mental working, the type of stitch: all
may be without an 'accounting cost' but for those who truly know the product, for it is these
people the company should wish to find and keep, the difference is incomparable.

A brand which is widely known in the marketplace acquires brand recognition. When
brand recognition builds up to a point where a brand enjoys a critical mass of positive
sentiment in the marketplace, it is said to have achieved brand franchise. One goal in
brand recognition is the identification of a brand without the name of the company present.
For example, Disney has been successful at branding with their particular script font
(originally created for Walt Disney's "signature" logo), which it used in the logo for go.com.

Consumers may look on branding as an important value added aspect of products or


services, as it often serves to denote a certain attractive quality or characteristic (see also
brand promise). From the perspective of brand owners, branded products or services also
command higher prices. Where two products resemble each other, but one of the products
has no associated branding (such as a generic, store-branded product), people may often
select the more expensive branded product on the basis of the quality of the brand or the
reputation of the brand owner

TRADEMARKS

A trademark or trade mark is a distinctive sign or indicator used by an individual, business


organization, or other legal entity to identify that the products or services to consumers with
which the trademark appears originate from a unique source, and to distinguish its products
or services from those of other entities.
A trademark is designated by the following symbols:

• ™ (for an unregistered trade mark, that is, a mark used to promote or brand goods)
• ℠ (for an unregistered service mark, that is, a mark used to promote or brand
services)
• ® (for a registered trademark)

A trademark is typically a name, word, phrase, logo, symbol, design, image, or a


combination of these elements.There is also a range of non-conventional trademarks
comprising marks which do not fall into these standard categories, such as those based on
color, smell, or sound.

The owner of a registered trademark may commence legal proceedings for trademark
infringement to prevent unauthorized use of that trademark. However, registration is not
required. The owner of a common law trademark may also file suit, but an unregistered
mark may be protectable only within the geographical area within which it has been used or
in geographical areas into which it may be reasonably expected to expand.

The term trademark is also used informally to refer to any distinguishing attribute by which
an individual is readily identified, such as the well known characteristics of celebrities.
When a trademark is used in relation to services rather than products, it may sometimes be
called a service mark, particularly in the United States.

b. What are the features of exchange and currency markets?


Ans: In the current system, exchange rates among the major currencies (principally the
U.S. dollar, the euro, and Japanese yen) fluctuate in response to market forces, with short-
run volatility and occasional large medium-run swings. Some medium-sized industrial
countries also have market- determined floating rate regimes, while other have adopted
harder pegs, including some European countries outside the euro area. Developing and
transition economies have a wide variety of exchange rate arrangements, with a tendency
for many but by no means all countries to move toward increased exchange rate flexibility.

This variety of exchange rate regimes exists in an environment with the following
characteristics.

• Partly for efficiency reasons, and also because of the limited effectiveness of capital
controls, industrial countries have generally abandoned such controls and emerging
market economies have gradually moved away from them. The growth of
international capital flows and globalization of financial markets has also been
spurred by the revolution in telecommunications and information technology, which
has dramatically lowered transaction cost in financial market and further promoted
the liberalization and deregulation of international financial transaction.
• International private capital flows fiancé substantial current account imbalances, but
the changes in these flows appear also sometimes to be a cause of macroeconomic
disturbances or and important channel through which they are transmitted to the
international system.
• Developing and transition countries have been increasingly drawn into the
integrating world economy, in terms of both their trade in goods and services and of
financial transactions.

Lessons from the recent crises in emerging markets are that for such counties with
important linkages to global capital market, the requirements for sustaining pegged
exchange rate regimes have become more demanding as a result of the increased mobility
of capital. Therefore, desirable unless the exchange rate is firmly fixed through a currency
board, unification with another currency, or the adoption of another currency as the
domestic currency (dollarization)

Flexible exchange rates among the major industrial country currencies seem likely to
remain a key feature of the system. The launch of the euro in January 199 market a new
phase in the evolution of the system, but the European Central Bank has a clear mandate
to focus monetary policy on the domestic objective of price stability rather than on the
exchange rate. Many medium-sized industrial countries, and developing and transition
economies, in an environment of increasing capital market integration, may also continue to
maintain market- determined floating rates, although more countries could may adopt
harder pegs over the longer term. Thus prospects are that:

• Exchange rates among the euro, the yen, and the dollar are likely to continue to
exhibit volatility, and schemes to reduce volatility are neither likely to be adopted, nor
to be desirable as they prevent monetary policy from being devoted consistently to
domestic stabilization objectives.
• Several of the transition countries of central and eastern Europe especially those
preparing for membership in the European Union, are likely to seek to establish over
time the policy disciplines and institutional structures required to make possible the
eventual adoption of the euro.

The approach taken by the IMF continues to be to advise member countries on the
implications of adopting different exchange rate regimes, to consider the choice of regime
to be a matter for each country to decide and to provide policy advice that is consistent with
the maintenance of the chosen regime.

Q. 6 Discuss the various International product and pricing decisions.


Ans:

Product Strategies
There are five major product strategies in international marketing.

Product communication extension

This strategy is very low cost and merely takes the same product and communication
strategy into other markets. However it can be risky if misjudgments are made. For
example, CPC international believed the US consumer would takes to dry soups, which
dominate the European market it did not work.

Extended Product – communications adaptation

If the product basically fits the different needs or segments of a market it may need an
adjustment in marketing communications only. Again this is a low cost strategy, but different
product functions have to be identified and a suitable communications mix developed.

Product adaptation- communication extension

The product is adapted to fit usage conditions but the communication stays the same. The
assumption is that the product will serve the same function in foreign markets under
different usage conditions.

Product adaptation – communications adaptation


Both product and communication strategies need attention to fit the peculiar need of the
market.

Product invention

This needs a totally new idea to fit the exclusive conditions of the market. This is very much
a strategy, which could be idea in a Third World situation. The development costs may be
high, but the advantages are also very high.

International Pricing

Recent developments is open-economy macroeconomics have progressed under the


paradigm of nominal price rigidities, where monetary disturbances are the main source of
fluctuations. Following developments in closed- economy models, new open-economy
models have combined price rigidities and market imperfections in a fully micro founded
inter-temporal general equilibrium setup. This framework has been used extensively to
study the properties of the international transmission of shocks, as well as the welfare
implications of alternative monetary and exchange rate policies.

Imperfect competition is a key feature of the new open – economy framework. Because
agents have some degree of monopoly power instead of being price takers, this framework
allows the explicit analysis of pricing and local-currency pricing. The first case is the
traditional approach, which assumes that prices are preset in the currency of the seller. In
this case, prices of imported goods change proportionally with unexpected changes in the
nominal exchange rate, and the law of one price always holds.’ In contrast, under the
assumption of local-currency pricing prices are preset in the buyer’s currency. Here,
unexpected movements in the nominal exchange rate do not affect the price of imported
goods and lead to short- run deviations from the law of one price.

Empirical evidence using disaggregated data suggests that international markets for
tradable goods remain highly segmented and that deviations in the law of one price are
large, persistent, and highly correlated with movement in the nominal exchange rate for
highly tradable goods. Moreover, there is strong evidence that the large and persistent
movements that characterize the behaviour of real exchange rates at the aggregate level
are largely accounted for by deviations in the law of one price for tradable goods,

The price- setting regime determines the currency of the denomination of imported goods
and the extent to which changes in exchange rates affect the relative price of imported to
domestic goods and the international allocation of goods in the short run. That is different
pricing regimes imply different roles for the exchange rate in the international transmission
of monetary disturbances. As we shall see, this assumption has very striking implications
for several important questions, namely real exchange rate variability, the linkage between
macroeconomic volatility and international trade, and the welfare effects of alternative
exchange rate regimes, among other.

While generating deviations from the law of one price that are absent from models
assuming producer – currency pricing, the assumption of local-currency pricing still leaves
important features of the data unexplained. The key role of this assumption in the properties
of open-economy models suggests that it is necessary to keep exploring the implication of
alternative pricing structures in open- economy models.