Subject: International Business Topic: Preparation Test

Submitted to: Dr. S. M. A. Islam Director, MBA program School of Business Primeasia University

Submitted by: Shamiul Hoque ID: 111-019-067

March 7, 2011

International Business
1. A. What are International business and Globalization? What is the relationship between them?

International Business: all commercial transactions between parties in two or more countries can be defined as International business. 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. Relationship between International businesses with Globalization is pretty straight forward, as Globalization opens all boundaries to promote and expand business. Globalization helps expansion of sales; Acquire resources effectively; Diversify sources of sales and supplies & Minimizes competitive risk.
B. Explain how globalization has changed over time and differs both among countries and within countries?

If we see historically, than perhaps the process of globalization could be divided into four major periods. 1st period (1870-1913) This is the period when European colonization began, setting the first footsteps of organized International trade routes. This is when trading among nations and even continents started, thus rose the first ever global markets. This is when only European countries were initiating global trades, which mainly involved sourcing of goods out colonized countries to colonizing nations. As history shows us, a lot of these trades were not of voluntary nature, however the idea of global trading was born in this era. 2nd period (1913-1950) This was a step back for globalization process, as it was faced by the first ever world war collapsing the idea of global market emerging the ideas of nationalism and empires. 3rd period (1950-1973) marks the end of colonization period and emerging of the first ever multilateral institutions and trade liberalization. 4th period (1973 to date) also known as the Golden Era is defined by factors like: decline of trade barriers and technological advancements. During the first three era of globalization, International Business was mainly concentrated in trading of goods and commodities within countries, whereas from the 4th period onwards, business moved actively to service sector and trade of financial, technological, intellectual etc. services. If in the past the Globalization process was driven by countries with developed economies only, than currently countries with Transition Economies are playing the most important role in the economic globalization process.
2. A. How is technology affecting the growth of International business?

Technology is perhaps the most important key factor of the growth of International Business. Improved information processing and communication allow firms to have better information about distant markets and coordinate activities worldwide. Improvements in transportation technology, including jet transport, temperature controlled containerized shipping, and coordinated ship-rail-truck systems have made firms better able to respond to international customer demands. As a consequence of these trends, businesses today operate in an environment that offers more opportunities, but is also more complex and competitive than was a generation ago. 2|Page

International Business
B. Why do countries cooperate with other countries? How does this cooperation affect International Business?

Countries cooperate with each other in an effort to make cross-border trade fast and easy by liberalization of government trade policies. Countries form allies in forms of organizations like, GAAT, EU, WTO, OPEC etc. to promote growth and expansion of International businesses. Cooperation among countries on the frontier of International Business has enabled: - Fulfil the desire of citizens for a better access to a greater variety of goods and services at a lower price, - Domestic producers became more efficient as a result of foreign competition, - Drive other countries to reduce their international trade barriers and get equally benefitted from globalization. Countries also cooperate to gain reciprocal advantage, to attack problems or meet the growing demands of products that a single country struggles to handle or also to occupy uncharted market in a third nation or source from them.
3. A. Define culture and membership.

Culture the specific learned norms of a society that reflect attitudes, values and beliefs. Membership participation or belonging of a person to a social/ethnical/regional or any other group, alliance or consortium.
B. What are the advantages and shortcomings of using the nation as proxy of the culture?

The reference of nation as proxy of culture can be seen as both advantage and shortcoming at the same time and may differ from nation to nation. The basic similarity among people within countries is both a cause and an effect of national boundaries. Traditional cultural norms Cultural values and norms are very strong and less possible to be cope with foreign influence, like Iran; whereas the cultural values are very much flexible and constantly changing for a country like USA. Language - areas that speak the same language, similar cultural attitudes spread quickly, like Bangladesh for instance. Whereas countries that have many competing languages within their borders tend to be more culturally diverse, like India. Religion - Religion also affects business practices across countries. It may determine what days businesses must be closed, working hours, and what kinds of foods will be consumed. Social Standards the average purchasing power of a nation, and also how diverse the social standards in a country also is a crucial factor for business.
4. A. What cultural factors help to explain risk taking behaviour? How do differences affect business?

Four cultural aspects affect a countrys attitude toward risk-taking behaviour: uncertainty avoidance, trust, future orientation and fatalism. Uncertainty avoidance - In countries high on uncertainty avoidance, workers prefer set rules which are not to be broken and tend to stay with the same company a long time. When uncertainty avoidance is low, workers will go out on a limb more frequently and will be quicker to change jobs to improve their careers.

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International Business Trust - Some cultures (such as Norway) tend to be trusting of other people. Other cultures (such as Brazil) tend to not trust others. The lower the trust, the higher the cost of doing business since managers have to spend time trying to foresee every possible precaution they must take to reduce the possibility of being tricked. Future orientation the need for immediate vs delayed gratification. In countries with developing or transition economies the employees need for gratification may be more immediate than perhaps in a nation with developed and/or more stable economic conditions. Fatalism - If people feel strongly that they control their own destiny, they will tend to work hard to achieve their goals and aspirations. In fatalistic countries where it is believed that ones destiny is pre-determined, people will be less likely to try to alter their conditions or work toward a different future. Fatalists believe that whatever God wills will happen and that trying to change Gods will is futile.
B. What factors should companies consider when trying to minimize resistance to changes they might introduce to foreign countries?

Once a company identifies cultural differences in foreign countries, they might need to consider the below factors in order to minimize resistance to changes: Value System: The more change upsets important values, the more resistance it will encounter. Accommodation is much more likely when changes do not interfere with deep-seated customs. Cost Benefit of Change: Some adjustments to foreign cultures are costly to undertake, but their benefits are only marginal. The expected cost-benefit of any change must be carefully considered. Resistance to Too Much Change: Resistance to change may be reduced if only a few demands are made at one time; additional changes may be phased in incrementally. Participation: A proposed change should be discussed with stakeholders in advance in order to ease their fears of adverse consequences and hopefully gain their support. Reward Sharing: A company may choose to provide benefits for all the stakeholders affected by a proposed change in order to gain support for it. Opinion Leaders: Characteristics of opinion leaders often vary by country. By discovering the local channels of influence, an international firm may seek the support of opinion leaders to help speed the acceptance of change. Timing: Many good business changes fail because they are ill-timed. Attitudes and needs change slowly, but a crisis may stimulate the acceptance of change. Learning Abroad: The essence for undertaking transnational practices is to capitalize on diverse capabilities by transferring learning among all the countries in which a firm operates.
5. A. What are the benefits of International Economic Analysis?

Economic analysis is without a doubt a very important factor of International Business. Research analysis has isolated many important elements of the economic environment. Such analysis gives a company the information about income of the targeted market, purchasing power of potential consumers, provides idea on the size of the market, income distribution and economic infrastructure. It helps shape economic activity, help understand how to operate business and also creation of unique markets.
B. What is GNI?

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International Business GNI or Gross national Income is the market value of all goods and services produced by a countrys domestically owned firms in a given year, including Income received from abroad. GNI = C (Consumption) + I (Investment) + G (Govt. purchases) + N (difference between export and import) + K (Income from abroad)
C. What do you mean by Inflation? How does it affect the business environment?

Inflation is the measure of the increase in the cost of living. Rate of Inflation influences on many parts of the economic environment such as, interest rates, exchange rates, the cost of living, general economic confidence, and also the stability of the current political system. All the above factors influence directly on the consumer market and thus have a crucial impact on the business environment. With above mentioned factors changing or being unstable consumers and companies both are unable to plan long term investments; with money losing its value it becomes impossible save too. Government also are faced with challenges like price controls, thus affecting the business environment.
6. A. What is meant by Economic System?

An economic system is a mechanism that deals with the production, distribution, and consumption of goods and services in a particular society. It is the set of structures and processes that guides the allocation of scarce resources and shapes the conduct of business activities in a nation. Three types of economic systems are in the world now: market economy, command economy and mixed economy.
B. Identify the fundamental features of market economy.

Market economy a free market built upon the private ownership and control of the factors of production. A market economy permits an open exchange of goods and services between producers and consumers with minimum/no influence from the government. At present there is not a single country in the world that can be called as a nation with market economic structure. As government intervenes in business environment of all countries without exception, however Hong Kong, UK, Canada & the US are said to be the closest to this model.
C. Identify the fundamental features of mixed economy.

Mixed economy is the type of economic structure where most decisions are market driven and business ownership is largely private, but significant government intervention is still evident. Government involvement in the economy may take various forms, - Companies operating in country owned by government; - May be whole business sectors owned by the government; - Or just setting up trading rules and policies, etc. The reason for these intervene is however is to protect society from individualism, greed, risk of unemployment, poverty and to ensure equal distribution of wealth and steady economic growth. Most countries in the present world are said to have mixed economic system. 5|Page