Master of Business Administration- MBA Semester 4 MB0053 International Business Management Assignment

Question 1- Write a note on Globalization. Answer 1- The term "globalization" has acquired considerable emotive force. Some view it as a process that is beneficial a key to future world economic development and also inevitable and irreversible. Others regard it with hostility, even fear, believing that it increases inequality within and between nations, threatens employment and living standards and thwarts social progress. This brief offers an overview of some aspects of globalization and aims to identify ways in which countries can tap the gains of this process, while remaining realistic about its potential and its risks. Globalization offers extensive opportunities for truly worldwide development but it is not progressing evenly. Some countries are becoming integrated into the global economy more quickly than others. Countries that have been able to integrate are seeing faster growth and reduced poverty. 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. There are four aspects of globalization: 1. Trade: Developing countries as a whole have increased their share of world trade from 19 percent in 1971 to 29 percent in 1999. For instance, the newly industrialized economies (NIEs) of Asia have done well, while Africa as a whole has fared poorly. The composition of what countries export is also important. The strongest rise by far has been in the export of manufactured goods. The share of primary commodities in world exports such as food and raw materials that are often produced by the poorest countries, has declined. 2. Capital movements: Globalization sharply increased private capital flows to developing countries during much of the 1990s. It also shows that:

the increase followed a particularly "dry" period in the 1980s; net official flows of "aid" or development assistance have fallen significantly since the early 1980s; and the composition of private flows has changed dramatically. Direct foreign investment has become the most important category. Both portfolio investment and bank credit rose but they have been more volatile, falling sharply in the wake of the financial crises of the late 1990s.

3. Movement of people: Workers move from one country to another partly to find better employment opportunities. The numbers involved are still quite small, but in the period 1965-90, the proportion of labor forces round the world that was foreign born increased by about one-half. Most migration occurs between developing countries. But the flow of migrants to advanced economies is likely to provide a means through which global wages converge. There is also the potential for skills to be transferred back to the developing countries and for wages in those countries to rise. 4. Spread of knowledge (and technology): Information exchange is an integral, often overlooked, aspect of globalization. For instance, direct foreign investment brings not only an expansion of the physical capital stock, but also technical innovation. More generally, knowledge about production methods, management techniques, export markets and economic policies is available at very low cost, and it represents a highly valuable resource for the developing countries. Question 2 Why do nations trade ? Discuss the relevance of poters diamond model in todays business context. Answer 2 Why do nations trade fundamental question that international trade theories help us understand is why do country trade ? Why a strong economy like US does not produce all goods and services at home, rather than importing them from countries such as China and India. The answer to the above question would be that countries world over are endowed with different natural, human, and capital resources. Each country varies from other in combining these resources(land, labour, and capital). In a globalized setup, every country cannot be as efficient as the best in producing the goods and services that their residence demands. As a result they have to trade-off their decisions to produce any good or service based on opportunities cost. Opportunities cost model helps us understand the choice of producing one good or another Michael E. Porter developed the Five Force Model in his book, Competitive Strategy. Porter has identified five competitive forces that influence every industry and market.

The level of these forces determines the intensity of competition in an industry. The objective of corporate strategy should be to revise these competitive forces in a way that improves the position of the organisation. Forces driving industry competitions are: market share and substantial resources. Therefore, they are threats to an established organisation. The threat of an entry depends on the presence of entry barriers and the reactions can be expected from existing competitors. An entry barrier is a hindrance that makes it difficult for a company to enter an industry. Threat of new entrants New entrants to an industry generally bring new capacity; desire to gain market share and substantial resources. Therefore, they are threats to an established organisation. The threat of an entry depends on the presence of entry barriers and the reactions can be expected from existing competitors. An entry barrier is a hindrance that makes it difficult for a company to enter an industry. Suppliers affect the industry by raising prices or reducing the quality of purchased goods and services. Rivalry among existing firms in the most industries, organisations are mutually dependent. A competitive move by one organisation may result in a noticeable effect on its competitors and thus cause retaliation or counter efforts. Threats substitute products and services Substitute products appear different but satisfy the same needs as the original product. Substitute products curb the potential returns of an industry by placing a ceiling on the prices firms can profitably charge. Others stakeholders - A sixth force should be included to Porters list to include a variety of stakeholder groups. Some of these groups include governments, local communities, trade association unions, and shareholders. The importance of stakeholders varies according to the industry. Question 3- Why do firms pay so much attention to economics factors while entering in particular market ? justify your answer with practical examples. Answer 3 - Multinational companies (MNC) may pursue business strategies that are home country oriented or host country oriented or world oriented. Perlmutter uses such terms as ethnocentric, polycentric and geocentric. However, "ethnocentric" is misleading because it focuses on race or ethnicity, especially when the home country itself is populated by many different races, whereas "polycentric" loses its meaning when the MNCs operate only in one or two foreign countries. According to Franklin Root (1994), an MNC is a parent company that a. engages in foreign production through its affiliates located in several countries, b. exercises direct control over the policies of its affiliates,

c. implements business strategies in production, marketing, finance and staffing that transcend national boundaries. Business strategy of a MNC can be analyzed with the help of Three Stages of Evolution 1. Export stage initial inquiries - firms rely on export agents expansion of export sales further expansion - foreign sales branch or assembly operations (to save transport cost) 2. Foreign Production Stage There is a limit to foreign sales (tariffs, NTBs).Once the firm chooses foreign production as a method of delivering goods to foreign markets, it must decide whether to establish a foreign production subsidiary or license the technology to a foreign firm. Licensing is usually first experience (because it is easy) it does not require any capital expenditure it is not risky payment = a fixed % of sales

e.g.: Kentucky Fried Chicken in the U.K. Problem that may arise while following a particular business strategy: The mother firm may find it difficult in exercise of any managerial control over the licensee (as it is independent). Secondly, the licensee may transfer industrial secrets to another independent firm, thereby creating a rival. The next stage for supplementing any particular business strategy is Investments involved. It requires the decision of top management because it is a critical step. it is risky (lack of information) (for example-US firms tend to establish subsidiaries in Canada first. Singer Manufacturing Company established its foreign plants in Scotland and Australia in the 1850s) plants are established in several countries licensing is switched from independent producers to its subsidiaries.
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 export continues 3. Multinational Stage: The company becomes a multinational enterprise when it begins to plan, organize and coordinate production, marketing, R&D, financing, and staffing. For each of these operations, the firm must find the best location.

Question 4- How has India reacted towards regional integration ? Discuss briefly the trade agreements signed by India. Answer 4- Regional integration can be defined as the unification of countries into a larger whole. Regional integration also reflects a countrys willingness to share or unify into a larger whole. The level of integration of a country with other countries is determined by what it shares and how it shares. Regional integration requires some compromise on the part of countries. It should aim to improve the general quality of life for the citizens of those countries. This trend has influenced both developed and developing countries to form customs unions and Free Trade Areas (FTA). The World Trade Organisation (WTO) terms these agreements of integration as Regional Trade Agreements (RTA). Types of Integration In the previous section an overview and the need for regional integration was covered. A whole range of regional integrations exist today. Different types of regional integration are discussed in this section. 1. Preferential trading agreement Preferential trading agreement is a trade pact between countries. It is the weakest type of economic integration and aims to reduce the taxes on few products to the countries who sign the pact. The tariffs are not abolished completely but are lower than the tariffs charged to countries not party to the agreement. India is in PTA with countries like Afghanistan, Chile and South Common Market (MERCOSUR). The introduction of PTA has generated an increase in the market size, and resulted in the availability and variety of new products. 2. Free trade area Free Trade Area (FTA) is a type of trade bloc and can be considered as a second stage of economic integration. It is made up of all the countries that are willing to or agree to reduce preferences, tariffs and quotas on most of the services and goods traded between them. 3. Common market Common market is a group formed by countries within a geographical area to promote duty free trade and free movement of labour and capital among its members. European community is an example of common market. Common markets levy common external tariff on imports from non-member countries. Benefits and costs A single market has many advantages. The freedom of movement of goods, capital, labour and services between the member countries, results in the efficient allocation of these production factors and increases productivity.

A single market presents a challenging environment for businesses as well as for customers, making the existence of monopolies difficult. This affects the inefficient companies and hence, results in a loss of market share and the companies may have to close down. 4. Economic union Economic unions are established by means of a formal intergovernmental legal agreement, among independent countries with the intention of fostering greater economic integration. The members of an economic union share some elements associated with their national economic jurisdictions. These include the free movements of: 1. Goods and services within the union along with a common taxing method for imports from non-member countries. 2. Capital within the economic union. 3. Persons within the economic union. Some form of cooperation usually exists when framing fiscal and monetary policies.

5. Political union A political union is a type of country, which consists of smaller countries/nations. Here, the individual nations share a common government and the union is acknowledged internationally as a single political entity. A political union can also be termed as a legislative union or state union.
Question-5 What is Global sourcing ? What makes India so attractive for global sourcing ? Answer 5 Globalisation of the world economy under the WTO has opened abundant opportunities of cost cutting, gaining competitive advantage and saving time for industries worldwide. Indian industries have experienced such developments as india is a member of the WTO since its inception in 1995. Global sourcing is described as the practice of sourcing cost effective and best goods and services across geopolitical boundaries in order to cater to global markets. Global sourcing strategy is aimed at exploiting global effciencie in all areas of manufacturing , trading and services to enable offering clients and customer the best possible product or service. Usually, efficiencies that prompt firms for global sourcing are low cost skilled labor, low cost raw material, proximity to key markets, time zone differences and other economic factors such as tax exemption and low trade tariffs. Indian industries have successfully levered global sourcing strategies in their global trade operations and sourcing has been the driving force behind the development and expansion if Indian foreign trade in the recent past. In a globalised set up, trade and commerce of skilled services such as it enabled services, software development and testing, purchasing, engineering and integrated chip designing, knowledge process outsourcing(KPO), offsourcing and home shoring is growing much faster than trade in all merchandise.

Question-6 Write short notes on : a) Cross cultural management b) WTO Answer 6 Cross cultural management The ability to demonstrate a series of behavior is called skill. It is functionally linked to achieving a performance goal. The most important aspect to qualify as a manager for positions of international responsibility is communication skills. The managers must adapt to other culture and have the ability to lead its members. The managers cannot expect to force members of other culture to fit into their cultural customs, which is the main assumption of cross cultural skills learning. Any organization that tries to enforce its behavioral customs on unwilling workers from another culture faces conflict. The manager has to possess the skills linked with the following: 1. Providing inspiration and appraisal systems. 2. Establishing and applying formal structures. 3. Identifying the importance of informal structures. 4. Formulating and applying plans for modification. 5. Identifying and solving disagreements. WTO World Trade Organization came into existence in 1995 after the desolation of General Agreement on Tariff and Trade (GATT).The WTOs overriding objective is to help trade flow smoothly, freely, fairly and predictably. It does this by: Administering trade agreements Acting as a forum for trade negotiations Settling trade disputes Reviewing national trade policies Assisting developing countries in trade policy issues, through technical assistance and training programs Cooperating with other international organizations

The WTO has nearly 150 members, accounting for over 97% of world trade. Around 30 others are negotiating membership. Decisions are made by the entire membership. This is typically by consensus. A majority vote is also possible but it has never been used in the WTO, and was extremely rare under the WTOs predecessor, GATT. The WTOs agreements have been ratified in all members parliaments. The WTOs top level decision-making body is the Ministerial Conference which meets at least once every two years. Below this is the General Council which meets several times a year in the Geneva headquarters. The General Council also
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meets as the Trade Policy Review Body and the Dispute Settlement Body. At the next level, the Goods Council, Services Council and Intellectual Property (TRIPS) Council report to the General Council. Numerous specialized committees, working groups and working parties deal with the individual agreements and other areas such as the environment, development, membership applications and regional trade agreements. 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 offices 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.