Terminal test – March 2022

Name of subject in-charge: Ms. Priyanka

Paper (subject name): International Business
Management
Paper code: BBA-306
Signature of sub in-charge:

Answer key
1. (b) 2.(b) 3.(b) 4.(c) 5.(c) 6.(b) 7.(c) 8.(d) 9.(a) 10.(b)
11.(b) 12.(a) 13.(a) 14.(c) 15.(b) 16.(c) 17.(b) 18.(b) 19.(c) 20.(a)
21.(c) 22.(a) 23.(b) 24.(b) 25.(c) 26.(a) 27.(5) 28.(2) 29.(4) 30.(3)
Terminal Test (March, 2022)
BBA Semester -6
Time: 2.5 HOURS
Paper code: BBA – 306
Paper title: International Business Management
Max Marks: 60
NOTE: (Influencing evaluator by giving names , symbols etc
in answer book would be treated as UFMs)

Q1.) Select the most appropriate answer: MCQ’S 1x10

1.) IBRD Stands for ---------

a.) International board for research and development
b.) International bank for Reconstruction and Development
c.) International bank for research Development
d.) International barrier for reconstruction and development

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 2.) The first phase of globalization started around 1870 and ended with------------
a) World war 1
b) World war 2
c) The establishment of GATT
d) IN 1913 when GDPwas high

3.) Which is the right sequence of stages of internationalization ?

a) Domestic , transactional , global , international, multinational
b) Domestic , international , multinational, global , transactional.
c) Domestic, multinational , international , transactional , global
d) Domestic , international, transactional, multinational, global.

4.) Ultimately---------- was replaced by the ----- on 1st jan 1895.

a) GATS , WTO
b) WTO,GATT
c) GATT,WTO
d) IMF, GATT

5.) --------- is the application of knowledge which redefines the boundaries of global
business.
a) Cultural values
b) Society
c) Technology
d) Economy

6.) Subsidiaries consider the regional environment for policy or strategy formulation
is known as ...........

a). Polycentric Approach

b) Regional Approach

c) Ethnocentric Approach

d) Geocentric Approach

7.) According to ...... the holding of country’s treasure primarily in the form of gold
constituted its wealth.

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 a). Gold Theory

b) Ricardo Theory

c) Mercantilism Theory

d) Hecksher Theory

8.) Globalization refers to.........

a) Lower incomes worldwide

b) Less foreign trade and investment
c) Global; warming and their effects
d) A more integrated and interdependent world

9.) IPR stands for......

a) Intellectual property rights

b) International property rights
c) Internal promotion rights
d) Interior promotion rights

10) Trade between two countries can be useful of two cost ratios of goods are:

a) Understanding

b) Decreasing

c) Equal

d) Different

11.) Dumping refers to:

a) Reducing tariffs
b) Sales of goods abroad at low a price , below their cost and price in home market
c) Buying goods at lower prices abroad and selling at higher prices locally
d) Expensive goods selling for low prices

12.) Capitalist, communist and mixed are types of

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 a) Economic system

b) Social system

c) Culture attitudes

d) Political system

13.) Which is not an Indian company.

a) Uniliver

b) Piramal

c) Wipro

d) Asian paints

14.) Which of the following is not a force in porter five forces model.

a) Buyers

b) Suppliers

c) Complementary products

d) Industry rivalry

15.) Comparative cost theory is given by

a) Adam smith

b) David Ricardo
c) Gottfried Haberler
d) Hechsher ohlin

16.) The............. Company products , market , invests and operates across the world

a) Global
b) International
c) Transactional
d) Multinational

17.) NAFTA stands for

a) North American trade association

b) North American free trade agreement

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 c)Northern atlantic trade agreement

d)North association for trade

18.)............ is the payment method most often used in international trade which offers the
exporter best assurance of being paid for the products sold internationally.

a) Bills of lading

b) Letter of credit

c) Open Account

d) Drafts

19.) Key controllable factors in global marketing are:

a) Government policy and legislation

b) Social and technical changes

c) Marketing activities and plans

d) All of the above

20.) .............. Corporation produces in the home country or in a single country and
focuses on marketing these products globally or vice versa.

a) Global

b) International

c) Transactional

d) None of the above

21.) Coverage of risk due to the fluctuating exchange rates is known as..........

a) Speculation

b) Arbitrage

C) Hedging

d) Forward rate

22.) The demand of foreign exchange is determined by country’s.........

a) Imports

b) Exports and imports

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 c) Exports

d) None of the above

23) Gold standard is an example of

a) Floating exchange rate

b) Fixed exchange rate

c) Crawling exchange rate

d) Crawling bands

24.) An international reserve asset created by the IMF taking into account the global
need to supplement existing reserve is called

a) Quota

b) Special drawings rights

c) International monetary rights

d) None of the above

25.) The balance of payments of a country on the current account is equal to

a) Balance of trade plus short term

b) Balance of trade plus net invisible exports

c) Balance of payment minus capital flow

d) Balance of invisible trade plus imports

26.) The main objective of the International Monetary Fund (IMF) was to

a) Promote international trade

b) Maintain stable exchange rates

c) Help economically backward countries

d) Promote internal liquidity

(International product life cycle stages ) (International competition)

A.) Introduction I. I. Companies from other high-
income countries increase exports to
the innovating country
B.Growth
II. Competitors from other high-
income countries may begin
production in developing countries

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 c.Maturity III. A few competitor at home
d. Decline IV. Competitors in other high income
countries begin production for their
domestic markets

Choose the correct answer from the options given below:

1. a-iii,b-iv,c-i, d-ii
2. a-iii,b-i,c-iv,d-ii
3. a-ii,b-iv, c-i, d-iii
4. a-iv,b-ii,c-iii, d-i

27.) Which of the following are possible negative impacts of FDI on domestic firms in
host countries?

a) Market monopoly

b) Technology dependence

c) Increased Competition

d) Profit outflow

Choose the correct answer from the options given below:

1) (a),(b) only
2) (b), (c) only
3) (a), (b),(d) only
4) (b),(c),(d) only
5) (a),(b),(c),(d)

28.) Match list I with list II

List I
Authors of trade
theory
(a) Steffan linder
(b)Raymond Vernon
(c)Hecksher - ohlin
(d)Adam Smith
List II
Name of the theory
(1) Product life cycle theory
(2)Country similarity theory
(3)Absolute advantage theory
(4) Factor proportion theory

Choose the correct answer from the options given below:

(1) (a)-(iv), (b)-(iii), (c)-(ii), (d)-(i)

(2) (a)-(ii),(b)-(I), (c)-(iv),(d)-(iii)
(3) (a)-(i),(b)-(iii), (c)-(iv), (d)- (ii)

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 (4) (a)-(iii), (b)-(iii),(c)-(iv),(d)-(ii)

29.) Match list I with list II

List I List II
(a)size of the market i) Globalization of business
(b) Demographic environment ii)Foreign trade policy
(c) Export-oriented units iii) Macro – environment
(d) Multinational corporations iv) Non- economic environment
Choose the correct option from those given below

1. a) –iv),b)-ii), c)-iii), d)-i)

2. a)-ii), b)-iii), c)-i), d)-iv)
3. a)-iii), b)-ii), c)-i),d)-iv)
4. a)-iii), b)-iv), c)-ii),d)-i)

30.) What are the drivers of globalization?

a) Population mobility especially of labour b) Financial flows

c) Exporting d) Assembly operations

Choose the correct answer from the following

1.) a) and b)
2.) b) and d)
3.) a) and b)
4.) c) and d)

Q2) Write short notes on any TWO of the following: 2x5

1. Dumping
 Dumping is a term used in the context of international trade. It's when a
country or company exports a product at a price that is lower in the foreign
importing market than the price in the exporter's domestic market. Because
dumping typically involves substantial export volumes of a product, it
often endangers the financial viability of the product's manufacturer or
producer in the importing nation.
 Dumping occurs when a country or company exports a product at a price
that is lower in the foreign importing market than the price in the
exporter's domestic market.
 The biggest advantage of dumping is the ability to flood a market with
product prices that are often considered unfair.
 Dumping is legal under World Trade Organization (WTO) rules unless the
foreign country can reliably show the negative effects the exporting firm
has caused its domestic producers.

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  Countries use tariffs and quotas to protect their domestic producers from
dumping.
2. Globalization
 Globalization refers to the integration of goods, services, and culture
among the nations of the world.
 Globalization is the spread of products, technology, information, and jobs
across nations.
 Corporations in developed nations can gain a competitive edge through
globalization.
 Developing countries also benefit through globalization as they tend to be
more cost-effective and therefore attract jobs.
 The benefits of globalization have been questioned as the positive effects
are not necessarily distributed equally.
 One clear result of globalization is that an economic downturn in one
country can create a domino effect through its trade partners.
 We have been experiencing globalization since the days of European
colonization.
 Advances in telecommunication and transportation technologies
accelerated globalization.
 The Internet has made all nations next-door neighbors.

3. Tariff barriers

4. Technology transfer
 The movement of scientific methods of production or distribution from one
enterprise, institution or country to another, as through foreign investment,
international trade, licensing of patents rights, technical assistance or training.
The process to commercially exploit research varies widely.
 In international markets, usually, is transmitted through International
Technology Transfer Agreements.
 Technology transfer is the movement of data, designs, inventions, materials,
software, technical knowledge or trade secrets from one organization to
another or from one purpose to another.
 Technology transfer can take place between universities, business and
government s either formally or informally , to share skills, knowledge,
technologies, manufacturing, methods, ,and more.
 It involves communication of relevant knowledge by the transferor to the
recipient

5. Leontief Paradox

Q3) Answer any FOUR out of the following questions:

4 x 10

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 1. Why is organisational structure important and how does structure itself become
a source of competitive advantage in international business? Elaborate.

2. Define the term ‘Globalization ‘. Describe the stages and drivers of

globalization.
Globalization means the process of integration of national economies through
cross-board flows of products, services, capital, technology, man power and
information. Globalization is an ongoing process by which regional
economies, societies and cultures have become integrated through a globe
spanning network of communication and trade
Globalization refers to intensification of cross national economic, political,
cultural, social, and technological interactions that leads to the establishment of
transactional structure and the integration of economic, political, and social
process on a global scale

Stages of Globalisation:
 In the first stage of globalization, companies normally tend to focus on
their domestic markets. They develop and strengthen their capabilities
in some core areas.
 In the second stage of globalization, companies begin to look at
overseas markets more seriously but the orientation remains
predominantly domestic. The various options a company has in this
stage are exports, setting up warehouses abroad and establishing
assembly lines in major markets. The company gets a better
understanding of overseas markets at low risk, but without committing
large amounts of resources.
 In the third stage of globalization, the commitment to overseas markets
increases. The company begins to take into account the differences
across various markets to customize its products suitably. Different
strategies are formed for different markets to maximize customer
responsiveness. The company may set up overseas R&D centers and
full-fledged country or region-specific manufacturing facilities. This
phase can be referred to as the multinational or multi-domestic phase.
The different subsidiaries largely remain independent of each other and
there is little coordination among the different units in the system.
 In the final stage of globalization, the transnational corporation
emerges. Here, the company takes into account both similarities and
differences across different markets. Some activities are standardized
across the globe while others are customized to suit the needs of
individual markets. The firm attempts to combine global efficiencies,
local responsiveness and sharing of knowledge across different
subsidiaries. A seamless network of subsidiaries across the world

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 emerges. It is very difficult to make out where the home country or
headquarters is.

Drivers of Globalization

 Establishment of the world trade organization

 Regional integration
 Declining trade barriers
 Growth in foreign direct investment
 Growth of multinational companies

3. What is World Trade Organization (WTO)?.What are its objectives? State its
functions.

The World Trade Organization is an intergovernmental organization that

regulates and facilitates international trade between nations. Governments use
the organization to establish, revise, and enforce the rules that govern
international trade
The World Trade Organization (WTO) is the only global international
organization dealing with the rules of trade between nations. At its heart are
the WTO agreements, negotiated and signed by the bulk of the world’s trading
nations and ratified in their parliaments. The goal is to ensure that trade flows
as smoothly, predictably and freely as possible.
As an influential member of WTO, India is at the lead of building fair global
laws, statutes and shields and supporting the concerns of the developing
system. India has fulfilled its promises towards the liberalisation of trade, made
in the WTO, by eliminating quantitative limitations on imports and decreasing
tariff charges.

Objectives of WTO:
The WTO has six key objectives:
(1) to set and enforce rules for international trade,
(2) to provide a forum for negotiating and monitoring further trade
liberalization,
(3) to resolve trade disputes,
(4) to increase the transparency of decision-making processes,
(5) to cooperate with other major international economic institutions involved
in global economic management, and
(6) to help developing countries benefit fully from the global trading system.

Functions of WTO:
 Facilitate international trade
It facilitates international trade through the removal of tariff and non-tariff
barriers.

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 It provides greater market access to all member countries.
 Formulation of rules
It establishes a rule-based trading regime, in which nations cannot place
arbitrary restrictions on trade.
 Protecting the interest of developing countries
It frames fair global rules, regulations.
It safeguards and advocates the interests of the developing world.
 Optimum utilisation of world resources
It is also responsible to increase production and trade of services.
It ensures optimum utilisation of world resources.

4. Define FDI and explain its different types. State their merits and demerits.

DEFINITION OF FDI
 A foreign direct investment (FDI) is a purchase of an interest in a
company by a company or an investor located outside its borders.
 Generally, the term is used to describe a business decision to acquire a
substantial stake in a foreign business or to buy it outright in order to
expand its operations to a new region. It is not usually used to describe
a stock investment in a foreign company.
 Foreign direct investments (FDI) are substantial investments made by a
company into a foreign concern.
 The investment may involve acquiring a source of materials, expanding
a company's footprint, or developing a multinational presence.
 As of 2020, the U.S. is second to China in attracting FDI.

TYPES OF FDI
There are mainly two types of FDI- Horizontal and Vertical, However, two
other types of foreign direct investments have emerged- conglomerate and
platform FDI.
 HORIZONTAL FDI: under this type of FDI, a business expands its
inland operations to another country. The business undertakes the same
activities but in a foreign country.
 VERTICAL FDI: in this case, a business expands into another country
by moving to a different level of the supply chain. Thus business
undertakes different activities overseas but these activities are related to
the main business.
 CONGLOMERATE FDI: under the type of FDI, a business undertakes
unrelated business activities in a foreign country. This type is
uncommon as in involves the difficulty of penetrating a new country
and an entirely new market.
 PLATFORM FDI: here, a business expands into another country but
the output from the business is then exported to a third country.

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 Advantages of FDI
 Boost in Economy: One of the major significant reasons a country
(especially a developing nation) attracts foreign direct investment is
due to the creation of jobs. FDI increases the production and services
sector, which creates jobs and helps to decrease unemployment rates in
the said country. Elevated employment explicates higher incomes and
awards the population with added buying powers, advancing the overall
economy.
 Human capital expansion: Human capital is concerned with the
knowledge and subsistence of any workforce. Employees’ various
skills gained through different training and practices can advance a
particular country’s education system and human capital. Through a
prolonged impact, it helps to train individual resources in other areas,
trades and companies.
 Increased exports: Many assets produced by the FDI have global
markets, and they are not solely based on domestic consumption. The
production of 100% export-oriented segments helps to serve FDI
investors in supporting exports from other foreign countries.
 Advanced Flow of Capital: The capital inflow is especially beneficial
for countries with limited domestic resources and limited chances to
raise stocks in the global capital market.
 Competitive Market: By promoting the entrance of foreign
organizations into domestic markets, FDI advocates the creation of a
competitive environment and breaks domestic trusts.

Disadvantages of FDI
 Impediment in domestic investment: At times, FDI can interfere with
domestic investments. Due to FDI, countries’ local businesses begin
losing interest in financing their household assets.
 Negatory exchange valuations: Foreign direct investments can seldom
affect exchange rates to the benefit of one country and the disadvantage
of another.
 More expensive costs: When investors invest in businesses in foreign
counties, they may notice the increased expense than domestic exported
goods. Frequently, more money is invested into motors and intellectual
resources than in earnings for local workers.
 Financial non-viability: Acknowledging that foreign direct investments
may be capital-intensive from the point of view of investors, they can at
times be very dangerous or economically non-reliable.
 Modern commercial colonialism: Third-world with a history of
colonialism is often troubled that foreign direct investment would end

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 in modern economic colonialism, revealing host countries and leaving
them defenseless to oppression by foreign companies.
5. What are various modes of foreign market entry?
MARKET ENTRY MODES
When you know the scale of entry, you will need to work out how to take your
business abroad. This will require careful consideration as your decision could
significantly impact your results. There are several market entry methods that
can be used.
 Exporting
 Exporting is the direct sale of goods and / or services in another
country. It is possibly the best-known method of entering a foreign
market, as well as the lowest risk. It may also be cost-effective as you
will not need to invest in production facilities in your chosen country –
all goods are still produced in your home country then sent to foreign
countries for sale. However, rising transportation costs are likely to
increase the cost of exporting in the near future.
 The majority of costs involved with exporting come from marketing
expenses. Usually, you will need the involvement of four parties: your
business, an importer, a transport provider and the government of the
country of which you wish to export to.
 Licensing
 Licensing allows another company in your target country to use your
property. The property in question is normally intangible – for
example, trademarks, production techniques or patents. The licensee
will pay a fee in order to be allowed the right to use the property.
 Licensing requires very little investment and can provide a high return
on investment. The licensee will also take care of any manufacturing
and marketing costs in the foreign market.
 Franchising
 Franchising is somewhat similar to licensing in that intellectual
property rights are sold to a franchisee. However, the rules for how the
franchisee carries out business are usually very strict – for example,
any processes must be followed, or specific components must be used
in manufacturing.
 Joint venture
 A joint venture consists of two companies establishing a jointly-owned
business. One of the owners will be a local business (local to the
foreign market). The two companies would then provide the new
business with a management team and share control of the joint
venture.
 There are several benefits to this type of venture. It allows you the
benefit of local knowledge of a foreign market and allows you to share

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 costs. However, there are some issues – there can be problems with
deciding who invests what and how to split profits.
 Foreign direct investment
 Foreign direct investment (FDI) is when you directly invest in facilities
in a foreign market. It requires a lot of capital to cover costs such as
premises, technology and staff. FDI can be done either by establishing
a new venture or acquiring an existing company.
 Wholly owned subsidiary
 A wholly owned subsidiary (WOS) is somewhat similar to foreign
direct investment in that money goes into a foreign company but
instead of money being invested into another company, with a WOS
the foreign business is bought outright. It is then up to the owners
whether it continues to run as before or they take more control of the
WOS.
 Piggybacking
 Piggybacking involves two non-competing companies working
together to cross-sell the other’s products or services in their home
country. Although it is a low-risk method involving little capital, some
companies may not be comfortable with this method as it involves a
high degree of trust as well as allowing the partner company to take a
large degree of control over how your product is marketed abroad

6. Explain the term ‘International Business’. What are the objectives for a firm to
go for international business?. Discuss some of the challenges involved in
International Business.

International business refers to commercial activities that go beyond the

geographical limits of a country.

Therefore, it includes not only the international movement of goods and

services but also the capital, personnel, technology, and intellectual property
such as patents, trademarks, technical knowledge, and copyrights.

It is a business that takes place outside the border, that is, between two
countries. This includes the international movement of goods and services,
capital, personnel, technology, and intellectual property rights such as patents,
trademarks, and know-how. It refers to the purchase and sale of goods and
services that exceed the geographical limits of the country.

It comes in three types:

1. Export Trade: It is the sale of goods and services to foreign countries.

2. Import trade: Purchase goods and services from other countries.

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 3. Entrepot Trade: Import of goods and services for re-export to other
countries.
There are several objectives of international business, each of which allows a
company to improve its performance.

1. Attract foreign demand:

Some companies are unable to increase their market share due to fierce
competition within the industry. Alternatively, changing consumer tastes could
reduce demand for the company’s products. Both of these conditions allow an
entity to consider foreign markets where potential demand may exist.
You already have a business there and therefore have some name recognition,
so you are focusing your efforts on future growth in those markets.

2. Utilize technology:
Many companies are establishing new businesses in so-called developing
countries, where the technology level is relatively low. Other companies have
established new communication systems in developing countries.
Other companies that create power generation, highway systems, and other
forms of infrastructure do extensive business in these countries. Motor
Company and General Motors are seeking to take advantage of the technology
by establishing factories in developing countries in Asia, Latin America, and
Eastern Europe.

3. Use of economic resources:

Labour and land costs vary widely from country to country. Companies often
try to establish production in places where land and labor are cheap. The cost is
much higher in developed countries than in other countries. Many companies
have subsidiaries in countries with low labor costs.
Many companies have set up production plants in Singapore and Taiwan to
take advantage of labor cost savings.

4. International diversification:
If all the assets of a company are designed to generate sales of a particular
product in the country, the profits of the company are usually volatile. This
instability is due to the exposure of companies to changes within the industry
or economy. The performance of a company depends on the demand for this
product and the economic conditions in which it operates.
The company can mitigate this risk by selling its products in several countries.

Following are the issues and challenges in doing international business:

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 7. What do you understand by international competitive advantage? State the
requirement for achieving competitiveness in overseas market.

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