INTERNATIONAL BUSSINESS

Q.1 Discuss how Porter’s Diamond Theory can be used to explain India’s growth as a IT services export hub
for global markets.

ANSWER-1

INTRODUCTION

Porter’s Diamond model is an economic model that is developed by Michael Porter that aims to

highlight and explain on why particular industries or nations become quite competitive in a
particular location and on the national and international levels.

Michael Porter is one of the highly renowned and famous authorities on the corporate strategy
and economic competition. He is the founder of The Institute for Strategy and Competitiveness
at the Harvard Business School.

The Porter’s Diamond also suggests that countries can also formulate new factor advantages for
themselves such as superior manufacturing technologies, skilled labor, and efficient human
resources, technologically advanced industries, and the favorable government policies that
support and elevate the country’s economy quite a few notches higher.

CONCEPT AND APPLICATION

Porter’s Diamond Theory can be used to explain India’s growth as a IT services export hub
for global markets.
India is the world's largest sourcing destination for the information technology (IT) industry,accounting for
approximately 67 per cent of the US$ 124-130 billion market. India's cost competitiveness in providing IT
services continues to be the mainstay of its USP in the global sourcing market (IBEF Report 2017).The
Indian IT sector is playing a major role in modernizing the Indian economy. With increasing government-
support for improving the IT infrastructure and the availability of strong IT software sectors in India,
gaining access to IT solutions specifically tailored for various industries is becoming easier and more
economical. The availability of IT as a supporting industry is expected to boost the competitiveness of the
analytics industry in multiple ways through achieving efficient solutions at a low price.

Firm Strategy, Structure and Rivalry

The first factor of Porter’s Diamond focuses on the competition within the home market from the contemporary industries that
challenges the companies to come up with the novel and innovative products, efficient customer service levels, and
manufacturing techniques that helps the companies to grow resulting in the overall development of the nation. It keeps the
companies on their toes on the continuous and consistent basis to compete with one another.
The national context in which companies operate largely determines how companies are created,
organized and managed: it affects their strategy and how they structure
themselves. Moreover, domestic rivalry is instrumental to international competitiveness, since
it forces companies to develop unique and sustainable strenghts and capabilities. The more
intense domestic rivalry is, the more companies are being pushed to innovate and improve in order to
maintain their competitive advantage. In the end, this will only help companies when entering the
international arena. A good example for this is the Japanese automobile industry with intense rivalry
between players such as Nissan, Honda, Toyota, Suzuki, Mitsubishi and Subaru. Because of their own
fierce domestic competition, they have become able to more easily compete in foreign markets as
well.

Factor Conditions
Factor conditions in a certain country refer to the natural, capital and human resources available.
Some countries are for example very rich in natural resources such as oil for example (Saudi Arabia).
This explains why Saudi Arabia is one of the largest exporters of oil worldwide. With human resources,
we mean created factor conditions such as a skilled labor force, good infrastructure and a scientific
knowlegde base. Porter argues that especially these ‘created’ factor conditions are important opposed
to ‘natural’ factor conditions that are already present. It is important that these created factor
conditions are continiously upgraded through the development of skills and the creation of new
knowledge. Competitive advantage results from the presence of world-class institutions that
first create specialized factors and then continually work to upgrade them. Nations thus
succeed in industries where they are particularly good at factor creation.This factor focuses on the
domestic homebuyers of the country or the local target audience that are sophisticated in nature and
are quite well aware having a flair for products that are high on quality, class, and innovation. They
prefer the home ground products rather than going for the international labels resulting in the growth
and development of domestic and national industries.

Demand Conditions
The last factor comprises of the input factors that are required for the production that includes raw
material, skilled labour, expert and talented human resources, well-placed infrastructure, education,
capital, and favourable weather conditions amongst other such vital factors.The home demand largely
affects how favorable industries within a certain nation are. A larger market means more challenges,
but also creates opportunities to grow and become better as a company. The presence of
sophisticated demand conditions from local customers also pushes companies to grow,
innovate and improve quality. Striving to satisfy a demanding domestic market propels companies
to scale new heights and possibly gain early insights into the future needs of customers across
borders. Nations thus gain competitive advantage in industries where the local customers give
companies a clearer or earlier picture of emerging buyer needs, and where demanding customers
pressure companies to innovate faster and achieve more sustainable competitive advantages than
their foreign rivals.

Related and Supporting Industries

For the overall growth and success of the companies and the country, it is very important for all the industry domains being
interconnected with one another helping each other to grow and flourish having a holistic approach in mind and the third factor
of Diamond model harps on the same.
The presence of related and supporting industries provides the foundation on which the focal
industry can excel. As we have seen with the Value Net, companies are often dependent on alliances
and partnerships with other companies in order to create additional value for customers and become
more competitive. Especially suppliers are crucial to enhancing innovation through more
efficient and higher-quality inputs, timely feedback and short lines of communication. A
nation’s companies benefit most when these suppliers themselves are, in fact, global competitors. It
can often take years (or even decades) of hard work and investments to create strong related and
supporting industries that assist domestic companies to become globally competitive. However, once
these factors are in place, the entire region or nation can often benefit from its presence. We can for
example see this in Silicon Valley, where all kinds of tech-giants and tech-start-ups are clustered in
order to share ideas and stimulate innovation.
Government
The role of the government in Porter’s Diamond Model is described as both ‘a catalyst and challenger‘.
Porter doesn’t believe in a free market where the government leaves everything in the economy up to
‘the invisible hand’. However, Porter doesn’t see the government as an essential helper and supporter
of industries either. Governments cannot create competitive industries; only companies can do that.
Rather, governments should encourage and push companies to raise their aspirations and
move to even higher levels of competitiveness. This can be done by stimulating early demand for
advanced products (demand factors); focusing on specialized factor creations such as infrastructure,
the education system and the health sector (factor conditions); promoting domestic rivalry by
enforcing anti-trust laws; and encouraging change. The government can thus assist the development
of the four aforementioned factors in the way that should benefit the industries in a certain country.

Chance
Even though Porter originally didn’t write anything about chance or luck in his papers, the role of
chance is often included in the Diamond Model as the likelihood that external events such as war and
natural disasters can negatively affect or benefit a country or industry. However, it also includes
random events such as where and when fundamental scientific breakthroughs occur. These events
are beyond the control of the government or individual companies. For instance, the heightened
border security, resulting from the September 11 terrorist attacks on the US undermined import
traffic volumes from Mexico, which has had a large impact on Mexican exporters. The discontinuities
created by chance may lead to advantages for some and disadvantages for other
companies. Some firms may gain competitive positions, while others may lose. While these factors
cannot be changed, they should at least be monitored so you can make decisions as necessary to
adapt to changing market conditions.

CONCLUSION

The IT-ITeS industry is particularly suited to the resource endowments in a developing

country like India by making, increasingly, more use of the resources in which India has
a comparative advantage, such as quality manpower and less use of the resources in
which India has a comparative disadvantage, such as physical infrastructure and
financial capital 

The demand for IT in the domestic market can be analyzed by looking at the dynamics
of demand in various user industries or industry verticals. The need for outsourcing of
IT within the domestic sphere is driven by the need for companies to focus on their core
businesses and improve operational efficiency and not cost considerations, which is the
prime driver for global sourcing. The early adopters of IT such as banking, financial
services and insurance (BFSI), telecom and IT-BPO are high on the maturity curve as
regards IT adoption while retail, healthcare, and government are the emerging verticals
 Q.2 How do the levels of economic integration differ? How does USMCA (United States Mexico- Canada
Agreement) differ from NAFTA in terms of economic benefits for member nations?

ANSWER-2
INTRODUCTION

Economic integration can be classified into five additive levels, each present in the global landscape:

 Free trade. Tariffs (a tax imposed on imported goods) between member countries are significantly
reduced, some abolished altogether. Each member country keeps its own tariffs regarding third countries.
The general goal of free trade agreements is to develop economies of scale and comparative advantages,
promoting economic efficiency.
 Custom union. Sets common external tariffs among member countries, implying that the same
tariffs are applied to third countries; a common trade regime is achieved. Custom unions are particularly
useful to level the competitive playing field and address the problem of re-exports (using preferential tariffs
in one country to enter another country).
 Common market. Services and capital are free to move within member countries, expanding scale
economies and comparative advantages. However, each national market has its own regulations, such as
product standards.
 Economic union (single market). All tariffs are removed for trade between member countries,
creating a uniform (single) market. There are also free movements of labor, enabling workers in a member
country to move and work in another member country. Monetary and fiscal policies between member
countries are harmonized, which implies a level of political integration. A further step concerns a monetary
union where a common currency is used, such as with the European Union (Euro).
 Political union. Represents the potentially most advanced form of integration with a common
government and were the sovereignty of a member country is significantly reduced. Only found within
nation-states, such as federations where there are a central government and regions (provinces, states,
etc.) having a level of autonomy.

USMCA
The USMCA is a mutually beneficial win for North American workers, farmers, ranchers, and
businesses. ... The Agreement is creating more balanced, reciprocal trade supporting high-
paying jobs for Americans and grow the North American economy.

USMCA will help reduce red tape at the border, reduce costs, and increase predictability for cross-
border transactions. Raises the “de minimis” customs thresholds under which U.S. businesses
may export to Canada and Mexico with reduced paperwork and without paying taxes or duties

NAFTA
The North American Free Trade Agreement (NAFTA) was a treaty between Canada,
Mexico, and the United States that eliminated most tariffs between the counties. It was
replaced by the United States-Mexico-Canada Agreement (USMCA) on July 1, 2020.

there are some key differences in the 2,082-page pact. Here are six.

1. Revving up auto manufacturing

USCMCA requires at least 75 percent of a vehicle’s parts to be made in one of the three
member countries to remain tariff-free when moving across any of the Canada-Mexico-U.S.
borders. That’s up from the previous rule, which required 62.5 percent. It also required wages
of at least $16 per hour for more of these vehicle parts. That should help alleviate pressure on
U.S. jobs, due to much lower wages in Mexico. That should add between 28,000 to 76,000
jobs in the auto industry over five to six years, according to various estimates. Meanwhile, GM
has already, in anticipation of the changes, moved production of a Chevrolet electric vehicle
back to the U.S.

2. More teeth in labor laws

The Democrats held up USMCA for almost a year to fight for enforceable labor laws that would
create a more level playing field for American workers. An interagency committee will now be
able to monitor Mexico’s labor reforms and compliance with labor obligations. A “rapid
response” panel can also review individual facilities for violations, and levy duties or penalties
on products from those facilities. The labor provisions won USMCA the backing of the AFL-
CIO, one of the largest unions in the United States.

3. Milk matters
Milk and other milk products will be able to more freely cross the Canadian-U.S. border, with
both countries agreeing to allow more of the other country’s dairy products in their countries.
Canada will also accept more poultry and eggs, while the U.S. will accept more peanuts and
peanut products, as well as a limited amount of sugar. Agricultural products were at zero tariffs
in NAFTA, and will remain so in USMCA.

4. U.S. Wheat gets wings

Under Canada’s old system, all U.S. wheat was considered feed, even high-quality protein
wheat. That’s gone away under USMCA.

5. Digital divides no more

Digital trade wasn’t part of NAFTA at all, so this part of USMCA charts brand new territory.
Whether the provisions will result in new jobs is unclear, but there are several business-
friendly aspects. For example, customs duties on digital products distributed electronically are
prohibited, and limits on where data can be stored have been minimized. Governments also
cannot require disclosure of proprietary computer source code and algorithms. Civil liabilities
for third-party content is also limited.

6. Environmental provisions
While the agreement didn’t go far enough to suit environmental groups like the Sierra Club,
USMCA does include $600 million to address environmental problems in the region that spill
over the border, and it removes a requirement to prove that a violation affects trade. It also
prohibits harmful fisheries subsidies that benefitted vessels or operators involved in illegal,
unreported or unregulated fishing and includes new protections for marine species like whales
and sea turtles.

Q.3

a. What is the role of digital currency in the economic environment of a nation?

b. How does digital currency impact those companies doing business with China?

ANSWER-3A

the advantages of the cryptocurrencies :

No inflation—the maximum number of coins is strictly limited (for example, 21 million in

Bitcoin). Since there are neither political forces nor corporations that can change this order,
there is no possibility of developing inflation in the system.

Peer-to-peer cryptocurrency network—in such networks there is no master server, which is

responsible for all operations. The exchange of information (in this case—money) is between
2 and 3 or more software customers. All installed by programmers-users who are part of the
network. Each client stores a record of all transactions executed and the number in each
wallet. Transactions are made from hundreds of distributed servers. Neither banks nor taxes,
nor governments can control the exchange of money between.

Unlimited possibilities for a transaction—each of the wallet holders can pay to everyone,
anywhere and any amount. The transaction cannot be controlled or prevented, so you can
make transfers anywhere in the world wherever a user is placed with a wallet.

No borders—payments made in this system are impossible for cancelation. Coins cannot be
forged, copied or spent twice. These opportunities guarantee the integrity of the field system.

Decentralization—there is no central controlling authority in the network, the network is

alluded to all participants, each computer crypto-valued member is a member of this system.
This means that the central government has no power to dictate rules to cryptocurrency
owners. And even if some part of the network goes offline, the payment system will continue
to function steadily.

Anonymity—completely anonymously and at the same time completely transparent. Each

company can create an infinite number of crypto address addresses, regardless of name,
address, or any other information.
Transparency—Bitcoin stores the history of transactions that have ever happened. It is called
a sequential block of blocks or a blockhead. The block keeps information about everything.
So, if the company publicly uses the Bitcoin address for example, then everyone can see how
much Bitcoin is owned. If the address of the company is not publicly confirmed, then
nobody will ever know that it belongs to this company. For full anonymity, companies use
the unique bitcoin address for each transaction.

Bitcoin’s open digging code applies the same algorithms used in online banking. The only
difference in online banking is the disclosure of information to users. All information about
the transaction in the BTC network is shared (like, when), but there is no data for the
recipient or the sender of the currencies (no access to the owner’s personal data).

Transaction speed—the ability to send money everywhere and everyone within minutes after
the network of the crypto-currency will process the payment.

CONCLUSION

Bitcoin has potential to replace traditional money. In order to do that, it must first evolve into a more secure form
of money. Liaising with other forms of online payment and involving the government in insurance policies for
protection against theft, are suggested steps for Bitcoin to grow out of its volatile stage. Bitcoin can possibly
be protected in a way that is analogous to the protection of depositors by the bank through Federal Deposit
Insurance Committee (FDIC), thereby minimizing the risks of theft. According to the findings of the present work
it is concluded that changes brought in the society are adapted gradually and rapid progress can be possible only
through the efforts of showing all the stake holders the benefits of the possibility of a single currency

ANSWER-3B

digital currency impact those companies doing business with China

Possible impact of digital currency on Chinese society and businesses

China is increasingly transforming into a cashless land – last year, mobile transactions reached
RMB 347 trillion (US$49 trillion), accounting for four of every five payments. Amid the
technological upheaval in its financial system, the country leads a solo effort on exploring the
CBDC, starting as early as 2014.

It’s still hard to predict how soon the DCEP could supersede or complement the payment services
provide by Alibaba and Tencent, China’s two tech giants – their digital wallets have over 1 billion
users and account for half of in-store payments and nearly three quarters of web sales in China.

However, once successful, this will be touted as a big win for the government as the major
economy with the first sovereign digital currency. With such a centralized currency, the
government would be able to track all digital cash in circulation, making it much harder for money
laundering, tax evasion, and terrorist financing.

According to Xinhua, the state media, China’s DCEP will adopt the principle of “controllable
anonymity”. That means, when trading with DCEP, both parties can be anonymous to protect the
public’s privacy, but when it comes to combating corruption, money laundering, tax evasion, and
terrorist financing, the state banks can still track the trading information.

The central bank could also control the flow direction of the state funds or financial subsidies. For
example, if it issues the DCEP to a commercial bank for lending to small businesses, it could
ensure that the money is activated only once transferred to a small firm.

Besides, the DCEP can create conditions for unconventional monetary policy. For instance, China
might find it easier to make nominal interest rates negative. Normally, when the central bank
imposes negative interest rates on bank deposits, residents would withdraw the deposit to avoid
capital devaluation. But with the DCEP, negative interest rates could apply to digital cash itself by
programming. On the other hand, the central bank could also channel digital cash more directly to
residents’ electronic wallets to stimulate the economy.

Internationally, the DCEP may, at some point in the future, help China to be able to transfer digital
money across borders without needing to go through a dollar-based international payment system
like SWIFT. With the US dollar dominance and its intentions to close the liquidity taps on specific
countries or institutions or people, such as via targeted sanctions, China appears to be building its
own private trading channels with some countries.

The Chinese government is yet to confirm a proposed timeline for the roll-out of the digital yuan.
But it is all but certain that the DCEP will usher in a new financial era in China. Hi-tech businesses
as well as foreign-invested retailers, financial institutions, and mobile app developers in China
need to watch its progress closely to track how this will impact their scope of business, affect user
behavior, and trigger any risk exposure.

Private sector involvement

The private sector is keen to get involved in the DCEP test. The country’s biggest ride-hailing
company Didi Chuxing, food delivery giant Meituan Dianping, and streaming platform Bilibili
were reported to be joining hands with banks to explore applications of the DCEP.

JD.com, one of China’s biggest e-commerce giants, has become the country’s first virtual platform
to officially accept digital yuan, according to the company’s announcement on December 5. The
company’s fintech arm JD Digits will accept digital yuan as payment for some products on its
online mall, as part of the December digital currency pilot program in Suzhou.