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International Business Environment Text Book PDF
International Business Environment Text Book PDF
International Business Environment Text Book PDF
International business comprises all commercial transactions (private and governmental, sales,
investments, logistics, and transportation) that take place between two or more regions,
countries and nations beyond their political boundaries. Usually, private companies undertake
transactions for profit; governments undertake them for profit and for political reasons. The
term "international business" refers to all those business activities which involve cross-border
transactions of goods, services, and resources between two or more nations. Transactions of
economic resources include capital, skills, people etc. for the purpose of the international
production of physical goods and services such as finance, banking, insurance, construction etc.
International Business conducts business transactions all over the world. These transactions
include the transfer of goods, services, technology, managerial knowledge, and capital to other
countries. International business involves exports and imports.
2. Expanding the production capacities beyond the demand of the domestic country: Some of
the domestic companies expand their production capacities more than the demand for the
product in domestic countries. These companies, in such cases, are forced to sell their excess
production in foreign developed countries. Toyota of Japan is an example.
3. Severe competition in the Home Country: The countries oriented towards market
economies since 1960s experienced severe competition from other business firms in the home
countries. The weak companies which would not meet the competition of the strong
companies in the domestic country started entering the markets of the developing countries.
4. Limited Home Market: When the size of the home market is limited either due to the smaller
size of the population or due to lower purchasing power of the people or both, the companies
internationalize their operations. Example, most of the Japanese automobiles and electronic
firms entered USA, Europe and even African markets due to smaller size of the home market.
Similarly, the mere six million population of Switzerland is the reason for Ciba-Geigy to
internationalize its operations.
5. Political stability vs. Political instability: Political stability does not simply mean that
continuation of the same party in power, but it does mean that continuation of the same
policies of the Government for a quite longer period.
7. Removal of barriers to entry: Barriers to entry are obstacles that make it difficult to enter a
given market. Different barriers are encountered by business enterprises that trade
internationally compared to domestic business. These barriers arise due to government
intervention in areas like industry regulation, legislative limitations on new firm, requirements
for license and permits are access to natural resources.
8. Resource access and cost savings: Some companies go internationally to locate resources
that are difficult to obtain in their home market or that can be obtained at a better price
internationally. The resources here refers to natural resources, human resources, financial
resources, managerial expertise and technical, further internationalization can provide cost
saving for a company by helping it to achieve certain economies of scale by expanding the
production scale.
1. Earn foreign exchange: International business exports its goods and services all over the
world. This helps to earn valuable foreign exchange. This foreign exchange is used to pay for
imports. Foreign exchange helps to make the business more profitable and to strengthen the
economy of its country.
3. Achieve its objectives: International business achieves its objectives easily and quickly. The
main objective of an international business is to earn high profits. This objective is achieved
easily. This it because it uses the best technology. It has the best employees and managers. It
produces high-quality goods. It sells these goods all over the world. All this results in high
profits for the international business.
4. To spread business risks: International business spreads its business risk. This is because it
does business all over the world. So, a loss in one country can be balanced by a profit in another
country. The surplus goods in one country can be exported to another country. The surplus
resources can also be transferred to other countries. All this helps to minimize the business
risks.
6. Get benefits from Government: International business brings a lot of foreign exchange for
the country. Therefore, it gets many benefits, facilities and concessions from the government. It
gets many financial and tax benefits from the government.
7. Expand and diversify: International business can expand and diversify its activities. This is
because it earns very high profits. It also gets financial help from the government.
1. Legal issues: When you conduct trade in another country, you'll have to be familiar with that
country's laws. You may also have to pay additional taxes and import duties in the United States
if you are importing products from other countries. The legal complexities of international
business can be challenging, and without proper legal advice you might be subject to fines and
penalties. Make sure you have excellent international lawyers who have a firm grounding in the
laws of their home countries.
3. Cultural Barriers: Different cultures have different values, and sometimes these differences
can be stark. Gender, for example, could prove problematic in countries where women are not
given equal rights to men. You may find yourself wondering if you can safely send female
employees to certain countries. Marketing styles in other countries may differ, and polite
behavior in the United States may be impolite elsewhere. Some cultures don't take contracts as
seriously as others, and many cultures view the group as more important than the individual.
It's important to learn the cultural intricacies of the places you do business.
5. Political Problems: Many people are strongly opposed to outsourcing, globalization and
other international business practices. You may lose some of your customer base if you begin
trading in other countries. Moreover, if your company is involved in human rights abuses in
other countries -- even if you had no idea these abuses were occurring -- you may be subject to
an onslaught of bad publicity and lost business.
Political Factors
Political factors concern government policies, laws and administrative orientations of different
countries and regional economic blocks. The political factors form the basis for regulating
international trade with respect to tariffs, quotas and technical standards. For example, the
European Union has regulations that guarantee preferential trade treatment for member
countries. Political stability is also an important aspect of the international business
environment. Frequent political unrest and military coups could force a multinational
cooperation to suspend or close operations.
Economic Factors
Rates of economic growth influence the levels of demand for your goods or services in
international markets. However, economic growth rates may be high in some countries and low
in others. For example, the 2010-2012 Eurozone debt crisis slowed down economic growth in
many European countries at a time when countries in other regions were experiencing an
economic boom. Consider such disparities of economic growth in the operational and planning
activities of a multinational corporation.
Technological Factors
The availability of technological infrastructure and technical capacities determine the prosperity
of a multinational corporation in host countries. Factors such as broadband connectivity and
technical training have become essential ingredients of successful operations in the modern
business world. Moreover, the levels of technological developments in a given country
determine the scope of technical understanding among its population. While it may be easier to
establish and maintain technical operations in high-technology countries, the same cannot be
said of low-technology countries.
Social Factors
Demographic factors such as religion and culture affect the types, quality, functional features
and demand levels of your products in international markets. Cultures attach different
meanings to time, objects, names, color and attitudes. For example, General Motors suffered
low sales when it introduced the Nova car in Latin American markets because the car name
translated to <it does not move= in Spanish. Therefore, a multinational corporation must have
the ability to interpret and understand varying cultural cues and patterns that are characteristic
of the international business environment.
Modes of entry
1. Licensing :
In this mode of entry, the domestic manufacturer leases the right to use its intellectual property
technology, copy rights ,brand name etc. to a manufacturer in a foreign country for a fee. Here
the manufacturer in the domestic country is called licensor and the manufacturer in the foreign
is called licensee. The cost of entering market through this mode is less costly. The domestic
company can choose any international location and enjoy the advantages without incurring
any obligations and responsibilities of ownership, managerial, investment etc.
2. Franchising
It involves the organization (franchiser) providing branding, concepts, expertise, and in fact
most facets that are needed to operate in an overseas market, to the franchisee. Management
tends to be controlled by the franchiser. Examples include Dominos Pizza, Coffee Republic and
McDonald9s Restaurant.
3. Turnkey Project :
A turnkey project is a contract under which a firm agrees to fully design, construct and equip a
manufacturing/ business/services facility and turn the project over to the purchase when it is
ready for operation for a remuneration like a fixed price , payment on cost plus basis. This form
of pricing allows the company to shift the risk of inflation enhanced costs to the purchaser. Eg
nuclear power plants, airports, oil refinery, national highways, railway line etc. Hence they are
multiyear project.
Strategic alliances are a term that describes a whole series of different relationships between
companies that market internationally. Sometimes the relationships are between competitors.
There are many examples including:
Shared manufacturing e.g. Toyota Ayago is also marketed as a Citroen and a Peugeot.
Research and Development (R&D) arrangements.
Distribution alliances e.g. iPhone was initially marketed by O2 in the United Kingdom.
Marketing agreements.
Essentially, Strategic Alliances are non-equity based agreements i.e. companies remain
independent and separate.
Joint Ventures tend to be equity-based i.e. a new company is set up with parties owning a
proportion of the new business. There are many reasons why companies set up Joint Ventures
to assist them to enter a new international market:
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A business may decide that none of the other options are as viable as actually owning an
overseas manufacturing plant i.e. the organization invests in plant, machinery and labor in the
overseas market. This is also known as Foreign Direct Investment (FDI). This can be a new-build,
or the company might acquire a current business that has suitable plant etc. Of course you
could assemble products in the new plant, and simply export components from the home
market (or another country). The key benefit is that your business becomes localized – you
manufacture for customers in the market in which you are trading. You also will gain local
market knowledge and be able to adapt products and services to the needs of local consumers.
The downside is that you take on the risk associated with the local domestic market. An
International Sales Subsidiary would be similar, reducing the element of risk, and have the same
key benefit of course. However, it acts more like a distributor that is owned by your own
company.
8. Internationalization Stages
So having considered the key modes of entry into international markets, we conclude by
considering the Stages of Internationalization. Some companies will never trade overseas and
so do not go through a single stage. Others will start at a later or even final stage. Of course
some will go through each stage as summarized now:
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9. The Internet
The Internet is a new channel for some organizations and the sole channel for a large number
of innovative new organizations. The e-Marketing space consists of new Internet companies
that have emerged as the Internet has developed, as well as those pre-existing companies that
now employ e-Marketing approaches as part of their overall marketing plan. For some
companies the Internet is an additional channel that enhances or replaces their traditional
channel(s). For others the Internet has provided the opportunity for a new online company.
10. Exporting
There are direct and indirect approaches to exporting to other nations. Direct exporting is
straightforward. Essentially the organization makes a commitment to market overseas on its
own behalf. This gives it greater control over its brand and operations overseas, over and above
indirect exporting. On the other hand, if you were to employ a home country agency (i.e. an
exporting company from your country – which handles exporting on your behalf) to get your
product into an overseas market then you would be exporting indirectly. Examples of indirect
exporting include:
Piggybacking whereby your new product uses the existing distribution and logistics of
another business.
Export Management Houses (EMHs) that act as a bolt on export department for your
company. They offer a whole range of bespoke or a la carte services to exporting
organizations.
Consortia are groups of small or medium-sized organizations that group together to
market related or sometimes unrelated products in international markets.
Trading companies were started when some nations decided that they wished to have
overseas colonies. They date back to an imperialist past that some nations might prefer
to forget e.g. the British, French, Spanish and Portuguese colonies. Today they exist as
mainstream businesses that use traditional business relationships as part of their
competitive advantage.
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Stages of Internationalization:
The stages of internationalization have been changing at a fast rate after 1900s. Many factors
contributed to the changing scenario of internationalization. These factors include:
INTERNATIONALISATION STAGES
Domestic Company: Most international companies have their origin as domestic companies.
The orientation of a domestic company essentially is ethnocentric. A purely domestic company
<operates domestically because it never considers the alternative of going international. The
growing stage-one company, when it reaches growth limits in its primary market, diversifies
into new markets, products and technologies instead of focusing on penetrating international
markets.
A domestic company may extend its products to foreign markets by exporting licensing and
franchising. The company, however is primarily domestic and the orientation essentially is
ethnocentric.
Multinational Company: When the orientation shifts from ethnocentric to polycentric, the
international company becomes multinational. In other words, <when a company decides to
respond to market differences, it evolves into a stage-three company is multinational that
pursues a multi-domestic strategy. The focus of the stage-three company is multinational or, in
strategic terms, multi-domestic (that is, the company formulates a unique strategy for each
country in which it conducts business).
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The global company will have either a global marketing strategy or a global sourcing strategy
but not both. It will either focus on global markets and source from the home or a single
country to supply these markets, or it will focus on domestic market and source from the world
to supply its domestic channel.
The Transnational Corporation is much more than a company with sales, investments and
operations in many countries. This company, which is increasingly dominating markets and
industries around the world, is an integrated world enterprise that links global resources with
global markets at a profit.
Stage 5
Stage 4 Transnational
Company
Stage 3 Global
Company
Stage 2 Multinational
Company
Stage 1 International
Company
Domestic
Company
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Meaning of globalization
Globalization is a process of interaction and integration among the people, companies, and
governments of different nations, a process driven by international trade and investment and
aided by information technology. This process has effects on the environment, on culture, on
political systems, on economic development and prosperity, and on human physical well-being
in societies around the world.
Globalization is not new, though. For thousands of years, people—and, later, corporations—
have been buying from and selling to each other in lands at great distances, such as through the
famed Silk Road across Central Asia that connected China and Europe during the Middle Ages.
Likewise, for centuries, people and corporations have invested in enterprises in other countries.
In fact, many of the features of the current wave of globalization are similar to those prevailing
before the outbreak of the First World War in 1914.
2. It leads to integration of individual countries of the world into one global market thereby
erasing differences between domestic markets and foreign markets.
4. Buying and selling of goods and services takes place from to/any country in the world.
5. Manufacturing and marketing facilities are set up anywhere in the world n the basis of their
feasibility and viability rather than on national considerations.
7. Factors of production like raw materials, labour, finance, technology and managerial skills are
sourced from the entire globe.
9. Globalization does not take place overnight. It proceeds gradually through several stages of
internationalization.
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1. Business freedom: There should not be unnecessary government restrictions which come in
the way of globalization, like import restrictions, restrictions on sourcing finance or other
factors from abroad, foreign investments, etc.
2. Facilities: The extent to which an enterprise can develop globally from home country base
depends on the facilities available like the infrastructural facilities.
4. Resources: Resources is one of the important factors which often decides the ability of a firm
to globalize. Resourceful companies may find it easier to thrust ahead in the global market.
Resources include finance, technology, R and D capabilities, managerial expertise, company and
brand image, human resource, etc.
6. Orientation: A global orientation on the part of the business firms and suitable globalization
strategies are essential for globalization.
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Globalization is the new catchphrase in the world economy, dominating the globe since the
nineties of the last century. People relied more on the market economy, had more faith in
private capital and resources, international organizations started playing a vital role in the
development of developing countries. The impact of globalization has been fair enough on the
developing economies to a certain extent. It brought along with it varied opportunities for the
developing countries. It gave a fillip for better access to the developed markets. The technology
transfer promised better productivity and thus improved standard of living.
Globalization has also thrown open varied challenges such as inequality across and within
different nations, volatility in financial market spurt open and there were worsening in the
environmental situation. Another negative aspect of globalization was that a majority of third
world countries stayed away from the entire limelight. Till the nineties, the process of
globalization in the Indian economy had been guarded by trade, investment and financial
barriers. Due to this, the liberalization process took time to hasten up. The pace of globalization
did not start that smoothly.
Economic integration by 'globalization' enabled the cross country free flow of information,
ideas, technologies, goods, services, capital, finance and people. This cross border integration
had different dimensions - cultural, social, political and economic. More or less the economic
integration happened through four channels -
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Advantages of globalization
The gains from globalization can be cited in the context of economic globalization:
1. Trade in Goods and Services- From the theoretical aspect, international trade ensures
allocating different resources and that has to be consistent. This specialization in the processes
leads to better productivity. We all know from the economic perspective that restrictive trade
barriers in emerging economies only impede growth. Emerging economies can reap the
benefits of international trade if only all the resources are utilized in full potential. This is where
the importance of reducing the tariff and non-tariff barriers crop up.
2. Movement of Capital- The production base of a developing economy gets enhanced due to
capital flows across countries. It was very much true in the 19th and 20th centuries. The
mobility of capital only enabled savings for the entire globe and exhibited high investment
potential. A country's economic growth doesn't, however, get barred by domestic savings.
Foreign capital inflow does play an important role in the development of an economy. To be
specific, capital flows either can take the form of foreign direct investment or portfolio
investment. Developing countries would definitely prefer foreign direct investment because
portfolio investment doesn't have a direct impact on the productive capacity expansion.
3. Financial Flows - The capital market development is one of the major features of the process
of globalization. We all know that the growth in capital and mobility of the foreign exchange
markets enabled better transfer of resources cross borders and by large the global foreign
exchange markets improved. It is mandatory to go in for the expansion of foreign exchange
markets and thus facilitate international transfer of capital. The major example of such
international transfer of funds led to the financial crisis - which has by now become a worrying
phenomenon.
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Merits
1. Wider Markets
Globalization offers larger markets to domestic producers. Domestic firms can export their
surplus output. They can understand the nature of foreign markets through direct and indirect
marketing channels. Domestic firms can realize higher prices from foreign markets. Global
operations help to improve public image which is helpful in attracting better talent.
2. Rapid Industrialization
Globalization helps in the free flow of capital and technology between countries. Global firms
can acquire finance at lower cost of capital. Free flows of capital and technology from advanced
countries help the developing countries to boost up their industrialization. Industrialization of
developing countries leads to balanced development of all the countries.
3. Greater Specialization
Globalization enables the domestic firms to specialize in areas where they enjoy competitive or
comparative advantage. By focusing on the functions or products of their core competence
domestic firms can compete successfully in the international markets. Specialization also helps
to save resources and promote exports of the country.
4. Competitive Gains
Globalization increase competition for domestic firms through imports and multinational
corporations. Domestic firms learn about new products, new technologies and new
management systems. They are under pressure to increase efficiency, introduce innovations
and reduce costs. The domestic entrepreneurs who fail to learn from their foreign rivals suffer
in the long run.
5. Higher Production
Globalization leads to spread up o manufacturing facilities in different countries. Firms with
worldwide contacts can outsource funds, technology, distribution and other functions from
anywhere in the world. They can negotiate subcontracting to remain focused on areas of their
core competence. International outsourcing and subcontracting help to improve operational
efficiency and o reduce costs.
6. Price Stabilization
Globalization can reduce price differences between countries. Free trade and international
competition help to equalize price levels in international markets. Countries with a high degree
of globalization can attract greater foreign investment which supplements domestic funds,
brings in foreign and improves balance of payments.
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Demerits
1. Interdependence
Globalization increases interdependence between nations of the world. As a result, economic
sovereignty and control over the domestic economy are reduced. There is a danger of foreign
economic dominance over the developing economies.
3. Unemployment
Globalization leads to restructuring of industry. Technology upgradation and focus on areas of
comparative advantage create unemployment and underemployment among low skilled
workers. As a result income inequality, poverty and social unrest may increase.
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5. Technological Dependence
Globalization offers readymade foreign technology which scuttles domestic research and
development. Foreign technologies are available at a high cost and often are not adaptable to
local conditions. Developing countries become technologically dependent on developed
countries.
6. Alien Culture
Globalization promotes consumption patterns and lifestyles which are inconsistent with the
local culture and values. It may lead to shift in the industrialization pattern contrary to the
national priorities. Now after looking at Globalization from both supportive and contradicting
point of view; we can now take a stand on whether the claims against globalization are
sustainable or not. Based on the above points, we can firmly say that globalization is not
responsible fully for the global economic situations alone. It might have played a part in the
crisis, but it did not start the fire.
The one reason which can be held responsible for the mishap is the repeal of Glass – Steagall
Act. The claims that globalization is the culprit are true but only to little extent. The sub - prime
mortgage crisis spread around the globe because of globalization and as a result, led to a sharp
surge in the inflation rates.
Conclusion
The implications of globalization for a national economy are many. Globalization has intensified
interdependence and competition between economies in the world market. This is reflected in
Interdependence in regard to trading in goods and services and in movement of capital. As a
result domestic economic developments are not determined entirely by domestic policies and
market conditions. Rather, they are influenced by both domestic and international policies and
economic conditions. It is thus clear that a globalizing economy, while formulating and
evaluating its domestic policy cannot afford to ignore the possible actions and reactions of
policies and developments in the rest of the world. This constrained the policy option available
to the government which implies loss of policy autonomy to some extent, in decision-making at
the national level.
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An enterprise operating in several countries but managed from one (home) country. Generally,
any company or group that derives a quarter of its revenue from operations outside of its home
country is considered a multinational corporation.
Global Companies
Global multinational enterprises (MNEs) are companies that operate on a global scale, as
opposed to MNEs that are regionally focused. There are various definitions of what constitutes
a truly 8global9 company, but one way to interpret this is a company that has at least 20% of its
sales in each of at least three different continental markets.
So, a company where 70% of their sales are generated in Asia would not be considered a global
MNE even though they might have significant operations in more than one country, but one
where 30% of sales are from each of Asia, Africa and Europe would be considered a global MNE.
Example
Companies who are MNEs such as McKinsey, Unilever and Wipro generate sales and profits in
multiple locations across the world.
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TNC vs MNC
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A global company or corporation, on the other hand, is an enterprise or company which is also
involved in trade relations with other countries. Unlike MNCs, global companies do not have
official headquarters, and they are composed of autonomous units which are parts of one
parent or global company. Each unit in a certain area or country handles their individual
concerns, and the parent company handles concerns which involve the overall global company.
Like MNCs, they hire the local workforce, but they usually pay local workers a higher salary.
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Features:
Has only direct vertical relationships between different levels in the firm.
Advantages:
1. Tends to simplify and clarify authority, responsibility and accountability relationships
3. Simple to understand.
Disadvantages:
1. Neglects specialists in planning
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(i) A line structure tends to simplify and clarify responsibility, authority and accountability
relationships. The levels of responsibility and authority are likely to be precise and
understandable.
(iii) Because line organizations are usually small, managements and employees have greater
closeness.
(i) As the firm grows larger, line organization becomes more ineffective.
(ii) Improved speed and flexibility may not offset the lack of specialized knowledge.
(iv) There is a tendency to become overly dependent on the few key people who an perform
numerous jobs.
The line officers or managers have the direct authority (known as line authority) to be exercised
by them to achieve the organizational goals. The staff officers or managers have staff authority
(i.e., authority to advice the line) over the line. This is also known as functional authority.
An organization where staffs departments have authority over line personnel in narrow areas of
specialization is known as functional authority organization. Exhibit 10.4 illustrates a staff or
functional authority organizational structure.
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In the line organization, the line managers cannot be experts in all the functions they are
required to perform. But in the functional authority organization, staff personnel who are
specialists in some fields are given functional authority (The right of staff specialists to issue
orders in their own names in designated areas).
The principle of unity of command is violated when functional authority exists i.e., a worker or a
group of workers may have to receive instructions or orders from the line supervisor as well as
the staff specialist which may result in confusion and the conflicting orders from multiple
sources may lead to increased ineffectiveness. Some staff specialists may exert direct authority
over the line personnel, rather than exert advice authority (for example, quality control
inspector may direct the worker as well as advise in matters related to quality).
While this type of organizational structure overcomes the disadvantages of a pure line
organizational structure, it has some major disadvantages:
They are: (i) the potential conflicts resulting from violation of principle of unity of command and
(ii) the tendency to keep authority centralized at higher levels in the organization.
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Exhibit 10.5 illustrates the line and staff organisational chart. The line functions are production
and marketing whereas the staff functions include personnel, quality control, research and
development, finance, accounting etc. The staff authority of functional authority organisational
structure is replaced by staff responsibility so that the principle of unity of command is not
violated.
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(i) Advising,
(iii) Control.
Some staffs perform only one of these functions but some may perform two or all the three
functions. The primary advantage is the use of expertise of staff specialists by the line
personnel. The span of control of line managers can be increased because they are relieved of
many functions which the staff people perform to assist the line.
(i) Even through a line and staff structure allows higher flexibility and specialization it may
create conflict between line and staff personnel.
(ii) Line managers may not like staff personnel telling them what to do and how to do it even
though they recognize the specialists9 knowledge and expertise.
(iii) Some staff people have difficulty adjusting to the role, especially when line managers are
reluctant to accept advice.
(iv) Staff people may resent their lack of authority and this may cause line and staff conflict.
Features:
1. Line and staff have direct vertical relationship between different levels.
2. Staff specialists are responsible for advising and assisting line managers/officers in
specialized areas.
3. These types of specialized staff are (a) Advisory, (b) Service, (c) Control e.g.,
(a) Advisory:
Management information system, Operation Research and Quantitative Techniques, Industrial
Engineering, Planning etc
(b) Service:
Maintenance, Purchase, Stores, Finance, Marketing.
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(c) Control:
Quality control, Cost control, Auditing etc. Advantages9
Disadvantages:
(i) Conflict between line and staff may still arise.
Advantages:
1. Committee decisions are better than individual decisions
Disadvantages:
1. Committees may delay decisions, consume more time and hence more expensive.
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I. Function,
II. Product,
III. Geographic territory,
IV. Project and
V. Combination approach.
Exhibit 10.6 illustrates organizational structures formed based on the above basis of
departmentation.
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Feature:
Temporary organisation designed to achieve specific results by using teams of specialists from
different functional areas in the organisation.
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(i) Work is defined by a specific goal and target date for completion.
(iii) Work is complex having independent activities and specialized skills are necessary for
accomplishment.
Feature:
Superimposes a horizontal set of divisions and reporting relationships onto a hierarchical
functional structure
Advantages:
1. Decentralised decision making.
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Disadvantages:
1. High administration cost.
2. Potential confusion over authority and responsibility.
3. High prospects of conflict.
4. Overemphasis on group decision making.
5. Excessive focus on internal relations.
This type of organisation is often used when the firm has to be highly responsive to a rapidly
changing external environment.
In matrix structures, there are functional managers and product (or project or business group)
managers. Functional manager are in charge of specialized resources such as production,
quality control, inventories, scheduling and marketing. Product or business group managers are
incharge of one or more products and are authorized to prepare product strategies or business
group strategies and call on the various functional managers for the necessary resources.
The problem with this structure is the negative effects of dual authority similar to that of
project organisation. The functional managers may lose some of their authority because
product managers are given the budgets to purchase internal resources. In a matrix
organisation, the product or business group managers and functional managers have somewhat
equal power. There is possibility of conflict and frustration but the opportunity for prompt and
efficient accomplishment is quite high.
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35
Advantages:
1. Alignment of corporate and divisional goals.
Disadvantages:
1. Conflicts between corporate departments and units.
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Definition
International marketing (IM) or global marketing refers to marketing carried out by
companies overseas or across national borderlines. This strategy uses an extension of the
techniques used in the home country of a firm.
It refers to the firm-level marketing practices across the border including market identification
and targeting, entry mode selection, marketing mix, and strategic decisions to compete in
international markets.
Information Required
International business firms require a large variety of data and information, such as markets,
customers, market intermediaries like wholesalers and retailers, competitors, foreign exchange,
resource information and general conditions.
1. Markets:
Day to day changes in demand due to competitors9 products, promotional
programmes, shift in government policies, changes in consumer incomes, change
in technology and the like.
Consumer Behaviour: Shifts in consumer behavior caused due to cultural
variations, shifts in social institutions and other factors.
Products: Product features, product uses, development of new products,
introduction of new products and changes to the existing products of
competitors
Marketing channels: Shifts in the preference over channels in the consumer
preferences, shifts in channel preferences and used by competitors, levels of
satisfaction of the existing market intermediaries etc.
Communication Media Availability: International marketing managers need to
data and information about the availability and intensity of communication
media. This information is useful to plan for promotional programmes. They also
need information regarding the efficiency of media in reaching targeted
consumers and its cost.
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Sources of Information:
International Marketing - Characteristics
Given below are some points that describe the basic characteristics of international
marketing −
A wide platform is available for marketing and advertising products and services. The market is
not limited to some precise local market or for people residing in a particular place, region or
country but is free for all. People from different nations sharing different cultures and traditions
can actively participate in it.
International market requires more expertise and special management skills and wider
competence to deal with various circumstances and handle different situations like changes in
the strategies of the government, the mindset of the people and many other such factors.
Competition is intense
Competition is very tough in international market, as the organizations at the global level have
to compete with both competitors in their home countries and also in the foreign lands.
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Competition is high because the clash is between developed & developing countries and both
have different standards and are unequal partners.
International marketing with its own advantages is also prone to different and tangible risks
and challenges. These challenges come in the form of political factors, regional and cultural
differences, changing fashion trends, sudden war situation, revision in government rules and
regulations and communication barriers
The nature of international marketing is dependent on various factors and conditions and
above all, it is dependent on the policies framed by different countries which are active
participants in international marketing. International marketing tends to ensure balanced
import and export to all countries big or small, rich or poor, developed or developing.
Large-scale operation
Large-scale operations involve relative amount of labor and capital to cater to the needs such
as transportation, and warehousing.
International restrictions
The international market needs to abide by different tariff and non-tariff constraints. These
constraints are regulated because different countries follow different regulations. All nations
tend to rationally abide by tariff barriers. All the imports and exports between the nations
participating in international marketing follow some restrictions in foreign exchange.
Sensitive character
International marketing is highly sensitive and flexible. The demand for a product in a market is
highly influenced by political and economic factors. These factors can create as well as decrease
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the demand for a product. In fact, use of advanced technology by a competitor or the launch of
a new product by another competitor may affect the sale of a particular firm9s product
worldwide.
International market is dominated by developed countries like the USA, Japan, and Germany as
they use highly advanced technology in production, marketing, advertising and establishing a
brand name. They provide admirable quality of products at reasonable prices. Presently,
Japanese products have got substantial existence in markets around the world. The Japanese
could achieve this only because of automation and effective use of advanced computer
technology.
Marketing at global level is highly prone to risks & is very complex and knotty. It undergoes
lengthy and time taking procedures & formalities. Competent expertise is required for handling
various sections of international marketing.
International marketing calls for long term planning. Marketing practices differ from nation to
nation influenced by social, economic & political factors.
The activities in international marketing are very time-consuming and knotty or complex. The
main cause of these difficulties are the local laws and policies enforced on different nations,
issues in payment as different countries use different currencies, distance between the
participating nations and time taking formalities involved therein.
The current trend of globalization does not limit companies to their national borders and invites
them for marketing on a higher platform, i.e., international platform. Every nation is free to
trade with any nation. New markets are indicating signs of growth and are marking signs of
development in economies like China, Indonesia, India, Korea, Mexico, Chile, Brazil, Argentina,
and many other economies all over the world.
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Marketing Research
Marketing research is "the process or set of processes that links the consumers, customers, and
end users to the marketer through information — information used to identify and define
marketing opportunities and problems; generate, refine, and evaluate marketing actions;
monitor marketing performance; and improve understanding of marketing as a process.
Marketing research specifies the information required to address these issues, designs the
method for collecting information, manages and implements the data collection process,
analyzes the results, and communicates the findings and their implications. It is the systematic
gathering, recording, and analysis of qualitative and quantitative data about issues relating to
marketing products and services. The goal of marketing research is to identify and assess how
changing elements of the marketing mix impacts customer behavior. The term is commonly
interchanged with market research; however, expert practitioners may wish to draw a
distinction, in that market research is concerned specifically with markets, while marketing
research is concerned specifically about marketing processes.
According to Robert Harmon (2003), MIS systems are composed on four components: (1) user
interfaces, (2) applications software, (3) databases, and (4) systems support. The following is a
description of each one of these components.
1. User interfaces. The essential element of the MkIS is the managers who will use the system
and the interface they need to effectively analyze and use marketing information. The design of
the system will depend on what type of decision managers need to make.
2. Application software. These are the programs that marketing decision makers use to collect,
analyze, and manage data for the purpose of developing the information necessary for
marketing decisions.
3. Database marketing. A marketing database is a system in which marketing data files are
organized and stored.
4. System support. This component consists of system managers who manage and maintain the
system assets including software and hardware network, monitor its activities and ensure
compliance with organizational policies.
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International Marketing is essential for all countries-small & big; developed & developing and
rich & poor. This is because no country in the world is self-sufficient as regard all the
requirements and no country can live in complete economic and political isolation. Every
country has to import something from other country and has to export whatever surplus
available. The natural resources are not divided equally among the countries of the world.
There is disparity among countries as regards geographical area, population, climate condition,
availability of natural resources, economic growth, technology development, production
activities and so on. Such disparity leads to inter dependent of countries. It is this situation
which serves as base for the conduct of large scale international marketing activities.
OBJECTIVES
1) To bring countries closer for trading purpose and to encourage large scale free trade
among the countries of the world.
2) To bring integration of economies of different countries and thereby to facilitate the
process of globalization of trade.
3) To establish trade relations among the nations and thereby to maintain cordial relations
among nations for maintaining world peace.
4) To facilitates and encourage social and cultural exchange among different countries of
the world.
5) To provide assistance to developing countries in their economic and industrial growth
and thereby to remove gap between the developed and developing countries.
6) To ensure optimum utilization of resources at global level.
7) To encourage world export trade and to provide benefits of the same to all participating
countries.
8) To offer the benefits of comparative cost advantage to all countries participating in
international marketing.
9) To keep international trade free and fair to all countries by avoiding trade barriers
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2) Brand Reputation
International marketing can have a unique advantage of helping to boost a brand's reputation.
Right or wrong, customers perceive a brand that's selling in multiple markets to be of higher
quality and better service than brands that just sell locally. Major technology companies, global
automobile models and multinational banks are proof of this. People are keen to buy products
that are widely available.
3) Global Networking
Expanding into a global market gives a business the distinct advantage of connecting with new
customers and new business partners. A company doing business in Eastern Europe, for
instance, may find a cheaper workforce, less-stringent tax laws or even less-expensive modes of
advertising in local newspapers, television stations and radio programs. In other words, the
opportunities for networking internationally are limitless. The logic behind this is simple: the
more "places" your business is, the more connections it can make.
International marketing can also open the door to future business expansion opportunities. Not
only does global marketing expand a company's sales base, it also helps the business to connect
to new vendors, a larger workforce and new technologies and ways of doing business.
American companies investing in Japan, for instance, have found programs such as Six Sigma
and Theory Z to be highly useful in shaping their business strategies. Being in a new market
improves the business's efficiency and helps open the management's eyes to previously
undiscovered opportunities for growth.
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5. Culture Trade should be done taking diverse into Culture does not affect in domestic
consideration. Even things like colour marketing.
combination can be affect the trade.2
6.Mode of Letter of credit is normally as mode of Cash, Cheques, DD9s are the most
Payment payment. common.
10. Risk International Marketing is subject to high Domestic Marketing is also subject
risk. Political, foreign exchange risk, bad to risk but not as high as
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11.Role of Politics Political factors play a vital role Political factors are of minor
importance
12.Market aspect Market is much more homogenous and Different or diverse markets
different segments fragmented in nature
13.Product mix, Product mix, Product planning& Product mix, Product planning&
Product planning& development is decided according to development is decided according
development international market to domestic market
The attainment of business exercises monitoring, directing and controlling the channel of a
company9s products and services to its customers at the global level to earn profit and satisfy
the demands internationally is the motto of international marketing.
International marketing ensures high standard life style & wealth to citizens of nations
participating in international marketing. Goods that cannot be produced in home country due
to certain geographical restrictions prevailing in the country are produced by countries which
have abundance of raw material required for the production and also have no restrictions
imposed towards production.
Logical allocation of resource & ensuring their best use at the international level is one of the
major advantages of international marketing. It invites all the nations to export whatever is
available as surplus. For example, raw material, crude oil, consumer goods & even machinery &
services.
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Demand for new goods is created through international market. This leads to growth in
industrial economy. Industrial development of a nation is guided by international marketing.
For example, new job opportunities, complete utilization of natural resources, etc.
International marketing ensures comparative cost benefits to all the participating countries.
These countries avail the benefits of division of labor & specialization at the international level
through international marketing.
Trade relations established through international marketing brings all the nations closer to one
another and gives them the chance to sort out their differences through mutual understanding.
This also encourages countries to work collaboratively with one another. This thereby designs a
cycle wherein developed countries help developing countries in their developmental activities
and this removes economic disparities and technological gap between the countries.
International marketing makes social & cultural exchange possible between different countries
of the world. Along with the goods, the current trends and fashion followed in one nation pass
to another, thereby developing cultural relation among nations. Thus, cultural integration is
achieved at global level.
Goods produced in surplus in one country are shipped to other countries that have the need for
the goods in international marketing. Thus, foreign exchange of products between exporting
country & importing countries meets the needs of each other. This is only possible if all the
participating countries effectively use surplus goods, service, raw material, etc. In short, the
major advantages of international marketing include effective utilization of surplus domestic
production, introduction of new varieties of goods, improvement in the quality of production &
promotion of mutual co-operation among countries.
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International marketing eases the availability of foreign exchange required for importing capital
goods, modern technology & many more. Essential imports of items can be sponsored by the
foreign exchange earned due to exports.
International marketing promotes exports of goods from one country to another encouraging
industrial development. Infrastructure facilities are expanded through international marketing.
It indirectly facilitates the use of transport, banking, and insurance in a country ensuring
additional benefits to the national economy.
Whenever a country faces natural calamities like floods & famines, it is supported by other
countries in the international market. The international market provides emergency supply of
goods and services to meet urgent requirements of the country facing the calamity. This
distribution can only be facilitated by a country which has surplus imports.
A company exporting goods to other foreign countries earns substantial profit through export
operation as domestic marketing is less profitable than international marketing. The loss a
company suffers in domestic marketing can be compensated from the profit earned through
exports in international marketing. Foreign exchange can be earned by exporting goods to
foreign countries. Thus, the profit earned can be used for the import of essential goods, new
machinery, technology, etc. This would further facilitate large-scale export in future.
Market assessment1
Market assessment is a detailed and objective evaluation of the potential of a new product,
new business idea or new investment.
1
http://web.smu.edu.sg/spring/market-assessment/what-is-market-assessment/#sp-content
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A well-executed market assessment will enable your company to decide where to use limited
resources and to go after markets and opportunities that will provide the best returns on
investments.
Failure to conduct proper market assessment could result in wastage of resources, missed
opportunities, poor returns on investments and even substantial financial losses which could be
detrimental to the future of your company.
An assessment of the market should be done in a systematic manner. The process can be
broken down into the following steps.
Gather basic information about your intended market – size, competition, potential customers
and income levels. You will also need information about the business environment – political,
economic, social and technological.
Gather more targeted information about potential risks or opportunities in the potential
market. Other information required includes data on market growth, trends, opportunities,
risks and key players in the market.
You need to put together all the information you have collected and determine if your business
venture is still viable. Once you are confident that you should proceed with the venture, you
can start developing your marketing plan.
In a PEST analysis, you need to look at political and legal, economic, social, technological (and
natural) factors. These may shape opportunities or create threats and can affect your
company9s ability to build customer relationships. With proper external analysis, you will gain
an overview of the different macro environmental factors that you need to take into
consideration before venturing into a new business area or new market.
In analysing key players in the market, you will gain a better understanding of suppliers,
intermediaries, customers, competitors and the public and how they may work with or against
your company.
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A detailed assessment of all these forces will help you determine the potential of prospective
markets. With this information on hand, you are now a step closer to making more informed
decisions about your business ventures. A brief summary of all these factors are shown in the
tables overleaf.
SWOT analysis seeks to provide information that is helpful in matching your company’s
resources and capabilities to the competitive environment in which you operate.
It involves defining the objective of your venture and identifying both internal and external
factors that are favourable and unfavourable in your journey to achieve that objective. A SWOT
analysis is instrumental in helping you assess the potential of prospective markets.
First, define the objective of your venture. An example would be <to open a branch in Vietnam
by 2018 and to achieve sales revenue of $1 million by 2020.=
Next, understand the 4 main classifications of internal and external factors. Then identify the
SWOTs based on your intended venture.
SWOT
Finally, evaluate the SWOTs and determine if your objective is attainable. If your objective
appears no longer attainable, then you must identify a different objective or venture and
repeat the SWOT analysis.
STRENGTHS
OPPORTUNITIES
WEAKNESSES
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THREATS
1) Product marketing mix – Comprised of Product, price, place and promotions. This marketing
mix is mainly used in case of Tangible goods.
2) Service marketing mix – The service marketing mix has three further variables included
which are people, physical evidence and process.
2
http://www.marketing91.com/marketing-mix-4-ps-marketing/
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Having the right marketing mix at the start of the marketing plan is absolutely essential. Over
time the concept of marketing mix has provided a steady platform for the launch of a new
product or business.
As mentioned before, the marketing mix is characterized by four different but equally
important variables. These variables are never constant and may be changed over time.
However, a change in one of the variables may cause a change in all the other variables as well.
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The first thing you need, if you want to start a business, is a product. Therefore Product is also
the first variable in the marketing mix. Product decisions are the first decisions you need to take
before making any marketing plan.
Before deciding on the product component there are some questions which you need to ask
yourself.
Pricing of a product depends on a lot of different variables and hence it is constantly updated.
Major consideration in pricing is the costing of the product, the advertising and marketing
expenses, any price fluctuations in the market, distribution costs etc. Many of these factors can
change separately.
Along with the above factors, there are also other things which have to be taken in
consideration when deciding on a pricing strategy. Competition can be the best example.
Similarly, pricing also affects the targeting and positioning of a product. Pricing is used for sales
promotions in the form of trade discounts. Thus based on these factors there are several pricing
strategies, one of which is implemented for the marketing mix.
Distribution has a huge affect on the profitability of a product. Consider a FMCG company
which has national distribution for its product. An increase in petrol rates by 10 rs will in fact
bring about drastic changes in the profitability of the company. Thus supply chain and logistics
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decisions are considered as very important costing decisions of the firm. The firm needs to have
a full proof logistics and supply chain plan for its distribution.
Promotions in the marketing mix includes the complete integrated marketing communications
which in turn includes ATL(Above The Line) and BTL(Below The Line) advertising as well as sales
promotions. Promotions are dependent a lot on the product and pricing decision. What is the
budget for marketing and advertising? What stage is the product in? If the product is
completely new in the market, it needs brand / product awareness promotions, whereas if the
product is already existing then it will need brand recall promotions.
Promotions also decide the segmentation targeting and positioning of the product. The right
kind of promotions affect all the other three variables – the product, price and place. If the
promotions are effective, you might have to increase distribution points, you might get to
increase the price because of the rising brand equity of the product, and the profitability might
support you in launching even more products. However, the budget required for extensive
promotions is also high. Promotions is considered as marketing expenses and the same needs
to be taken in consideration while deciding the costing of the product.
Thus as we see from the above diagram, all the four variables of marketing mix are inter related
and affect each other. By increasing the pricing of the product, demand of the product might
lessen, and lesser distribution points might be needed. On the other hand, the product USP can
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be such that maximum concentration is on creating brand awareness, thereby increasing need
of better pricing and more promotions. Finally, the overall marketing mix can result in your
customer base asking for some improvement in the product, and the same can be launched as
the upgraded product.
The role of Four P9s of marketing in Strategy – Marketing mix plays a crucial role while deciding
the strategy of an organization. It is the first step even when a marketing plan or a business
plan is being made. This is because, your marketing mix decision will also affect segmentation,
targeting and positioning decisions. Based on products, segmentation and targeting will be
done. Based on the price, positioning can be decided. And these decisions will likely affect the
place and promotion decisions. Thus, the marketing mix strategy goes hand in hand with
segmentation targeting and positioning.
The above four P9s of marketing give you an overall look at the product marketing mix. If your
product is a service then there are 3 further P9s taken into consideration namely – people,
physical evidence and process.
Product mix consists of various product lines that an organisation offers, an organisation may
have just one product line in its product mix and it may also have multiple product lines. These
product lines may be fairly similar or totally different, for example - Dish washing detergent
liquid and Powder are two similar product lines, and both are used for cleaning and based on
same technology; whereas Deodorants and Laundry are totally different product lines.
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PROMOTION DECISIONS
Promotion plays a vital role in providing information of the product to the foreign customers. It
also creates the desirability of the product among foreign potential buyers. Foreign companies
desire to communicate with their marketing intermediaries and potential buyers to ensure
favorable sentiment toward themselves and their products. Promotion is more culture bound
than other Ps.
Hence, the foreign companies must take special care in promoting the product in the host
country.
PRICING DECISIONS
Though the pricing is significant among the 4 Ps, it receives the least attention in the
international marketing. Pricing decisions can be studied from the following approaches:
• Supply and Demand
• Cost
• Elasticity or Cross Elasticity of Demand
• Exchange Rates
• Market Share
• Tariffs and Distribution Costs
• Culture
• Purchasing Power
PRICING POLICIES
The pricing policies of international companies include:
• Standard price policy
• Two-tiered pricing
• Market pricing.
Standard price policy: Under the standard price policy, the international company sells the
product at the same price for the customers of any country or nationality. Crude oil producers
like Kuwait Oil, Aramco and Pemex sell their products to all customers at price determined by
supply of and demand for crude oil in the world crude oil market. .
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Two-tiered pricing policy: International Company under this policy sells its product at two
prices, viz., one price for domestic sales and another price for the foreign sales. This policy is
adopted due to the involvement of shipping costs, tariffs and foreign distribution costs.
Marketing pricing policy: International companies following this policy customise their pricing
on a market-by-market basis in order to maximise their profits in each market. Japanese
automobiles follow this policy in pricing their cars.
Alternative pricing strategies: There are a number of alternative pricing strategies in addition to
the above-mentioned strategies. These include:
Discounts (cash, quantity, functional etc.)
Financing or credit terms
Bundle or unbundle.
DISTRIBUTION DECISIONS
Distribution decisions focus on establishing a system that, at its basic level, allows customers to
gain access and purchase a marketer9s product. However, marketers may find that getting to
the point at which a customer can acquire a product is complicated, time consuming, and
expensive. The bottom line is a marketer9s distribution system must be both effective (i.e.,
delivers a good or service to the right place, in the right amount, in the right condition) and
efficient (i.e., delivers at the right time and for the right cost). Yet, as we will see, achieving
these goals takes considerable effort.
Distribution decisions are relevant for nearly all types of products. While it is easy to see how
distribution decisions impact physical goods, such as laundry detergent or truck parts,
distribution is equally important for digital goods (e.g., television programming, downloadable
music) and services (e.g., income tax services). In fact, while the Internet is playing a major role
in changing product distribution and is perceived to offer more opportunities for reaching
customers, online marketers still face the same distribution issues and obstacles as those faced
by offline marketers.
In order to facilitate an effective and efficient distribution system many decisions must be made
including (but certainly not limited to):
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During the introduction stage, products are developed in industrialized countries and supported
by firm9s substantial research and development budgets and by highly skilled product research
teams. To quickly recover the high costs of product development and launching, a firm markets
products in industrialized countries to consumers who can afford the high prices charged to
recover the high costs, while it still has control of the market (it is the only manufacturer or one
of the few manufacturers of the product). According to the initial IPLC theory these products
were first marketed in the products country of origin. Assuming a reasonable adoption rate in
highly industrialized countries, the product also becomes available in developing countries,
where it is exported by the firm. (E.g., the IBM PCs were produced in the US and spread quickly
throughout the industrialized countries)
3
Umair, M. (2014). International Business (pp. 1.66-1.68). Bangalore, India: Skyward Publishers.
57
Exports to markets in advanced countries further increase through time making it economically
possible and sometimes politically necessary to start local production. The product9s design and
production process becomes increasingly stable. A copy product is produced elsewhere and
introduced in the home country (and elsewhere) to capture growth in the home market. This
moves production to other countries, usually on the basis of cost of production. (E.g, the clones
of the early IBM PCs were not produced in the U.S)
In this stage of the international product life cycle characterized by a slowdown in sales growth
as the product is adopted by most target consumers and by a leveling or decline in profits
primarily due to intense price competition. The firm begins to focus on the reduction of process
cost rather than the addition of new product features. As a result, the product and its
production process become increasingly standardized. Consequently, production shifts to low-
income countries where competitors enjoy low-cost advantages and can economically serve
export markets worldwide. Eventually, the country that invented the product becomes a net
importer.
Stage 4: Decline
The stage of the international product life cycle in which products are rapidly losing ground to
new technologies or product alternatives, causing a decrease in sales and profits. Whatever
market is left becomes shared between competitors who are predominately foreign. A MNC
will internally maximize <offshore= production to low-wage countries since it can move capital
and technology around, but not labor. As a result, the domestic market will have to import
relatively capital intensive products from low income countries. This machines that operate
these plants often remain in the country where the technology was first invented.
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Introduction
International Human Resource Management (IHRM) is a new and rapidly changing area of
specialist and generalist practice. It is also a lively and growing academic subject having links
with many different disciplines including economics, international business, strategy,
communications, political science and public policy.
The origins of IHRM can be traced back to the growth of international business operations and
the development of multinational enterprises (MNEs) with their formal and informal
approaches to staffing, personnel administration and personnel management.
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For domestic HRM, involvement with employee9s personal lives is only confined to issues such
as providing employee insurance programmes and offering assistance in relocating. However,
the involvement with staff9s family member is limited. This is unlikely for firms operating
internationally. IHRM must involve broader compensation, including transportation,
recreational programmes, housing, children education, spouse employment and family
healthcare for expatriate and local staff.
The complex workforce mix is another factor that contributes to the complexity of IHRM. HR
managers in MNCs must deal with the issues of political, economic, cultural, ethical, religious
and legal differences. Moreover, they are also required to focus on various HR activities change.
For example, since more well trained local staffs and managers available, companies are
encouraged to bring high-potential local workers to corporate headquarters.
Risk Exposure
Expatriate failure is a high-cost problem for MNCs. Due to the changeable foreign exchange
rate and location of assignment, the direct costs such as salary, travel, training and relocation
expenses can be over three times higher than the costs spend in domestic environment.
Indirect costs such as reputation damage and loss of market share are also with high cost risk.
Other aspects of risk exposure are terrorism and political instability. For example, the tragic
9/11 attack in New York, civil and social upheavals, and military conflicts. In order to ensure
physical safety of employees, HR department also have to consider dynamic political and
environmental risk when arranging international meetings and may design emergency
evacuation procedures for highly volatile working locations.
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IHRM activities are also influenced by more external forces. For example, government factors
such as Malaysia force HR managers to set affirmative action to provide equal employment
opportunity for the workforce and intend to increase employment and skill level of nationals.
State economy is an important factor for HR department to consider. Issues include expensive
labour cost in developed countries but cheap labour in developing countries. HR managers
operating activities in an international environment also need to concern their ways of conduct.
For instance, they have to understand the local ways of doing business and follow local
government regulations when dealing with the issues regard to labour relations, health and
safety, and taxation.
Global Recruitment4
Recruitment means the searching for prospective candidates and stimulating them to apply for
jobs. Recruitment attracts a large number of qualified applicants who desire to work in the
company. The recruitment information given by the global companies helps the qualified
candidates who are willing to work to send their resume, along with a letter expressing their
desire to work. It also helps the unqualified candidates to self select themselves out of the job
candidacy. Thus, the accurate information provided by the global company attracts the
qualified and repels the unqualified candidates.
Thus, recruitment helps the global company in finding out potential candidates for actual or
anticipated vacancies in the company.
Parent country nationals are employees (of a company or its subsidiaries located in various
countries) who are the citizens of the country where the company9s headquarters are located.
Parent country nationals in the international business normally are managers, heads of
subsidiary companies, technicians, trouble-shooters and experts. They visit subsidiary
companies and operations-
4
International Recruitment. (n.d.). In whatishumanresource. Retrieved April 6, 2017, from
http://www.whatishumanresource.com/international-recruitment
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However, sending parent country nationals involves cost and causes ego and cultural problems.
Host country nationals are the employees of the company9s subsidiary who are the citizens of
the country where the subsidiary is located.
However, there are certain disadvantages associated with the host country nationals. They
include:
They are not familiar with the objectives, goals and strategies of the parent company
They are unaware of the needs of the headquarters
They view the company only from the local perspective rather than from the global
prospective
It would be difficult to train the host country nationals due to variations in the views
about achievement, equity, the work ethic and productivity of the host country
nationals from those of the parent country nationals.
For example, Mr. Akhil – an Indian citizen – is working for an American subsidiary in France. Mr.
Akhil is called third country national. Third country national is an employee of a company9s
subsidiary located in a country, which is not his home country. The software professionals of
India who work in American subsidiaries located in various countries of Europe are called third
country nationals.
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Less cost with required expertise, skill knowledge and foreign language skills
Less risk of employing an Indian third country national who speak English fluently
They have a cultural fit due to their work experience in multicultural environment
However, the local government may impose conditions and regulate in employing third country
nationals.
Selection policy is vital in global business as it deals with the various types of people, jobs and
placement. In fact, selection policy contributes for the achievement of the strategic goal of
global business i.e, <Think globally and act locally=.
Ethnocentric approach
When a company follows the strategy of choosing only from the citizens of the parent country
to work in host nations, it is called an ethnocentric approach. Normally, higher-level foreign
positions are filled with expatriate employees from the parent country. The general rationale
behind the ethnocentric approach is that the staff from the parent country would represent the
interests of the headquarters effectively and link well with the parent country. The recruitment
process in this method involves four stages: self-selection, creating a candidate pool, technical
skills assessment, and making a mutual decision. Self-selection involves the decision by the
employee about his future course of action in the international arena. In the next stage, the
employee database is prepared according to the manpower requirement of the company for
international operations. Then the database is analyzed for choosing the best and most suitable
persons for global assignments and this process is called technical skills assessment. Finally, the
best candidate is identified for foreign assignment and sent abroad with his consent.
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The ethnocentric approach places natives of the home country of a business in key positions at
home and abroad. In this example, the U.S. parent company places natives from the United
States in key positions in both the United States and Mexico.
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Polycentric approach
When a company adopts the strategy of limiting recruitment to the nationals of the host
country (local people), it is called a polycentric approach. The purpose of adopting this
approach is to reduce the cost of foreign operations gradually. Even those organizations which
initially adopt the ethnocentric approach may eventually switch over the polycentric approach.
The primary purpose of handing over the management to the local people is to ensure that the
company understands the local market conditions, political scenario, cultural and legal
requirements better. The companies that adopt this method normally have a localized HR
department, which manages the human resources of the company in that country. Many
international companies operating their branches in advanced countries like Britain and Japan
predominantly adopt this approach for recruiting executives lo manage the branches."
The polycentric approach uses natives of the host country to manage operations in their country and
natives of the parent country to manage in the home office. In this example, the Australian parent
company uses natives of India to manage operations at the Indian subsidiary. Natives of Australia
manage the home office.
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Geocentric approach
When a company adopts the strategy of recruiting the most suitable persons for the positions
available in it, irrespective of their nationalities, it is called a geocentric approach. Companies
that are truly global in nature adopt this approach since it utilizes a globally integrated business
strategy. Since the HR operations are constrained by several factors like political and ethnical
factors and government laws, it is difficult to adopt this approach. However, large international
companies generally adopt the geocentric strategy with considerable success.
For international recruitment, especially on foreign soil, organizations generally use manpower
agencies or consultants with international connections and repute to source candidates, in
addition to the conventional sources. For an effective utilization of the internal source of
recruitment, global companies need to develop an internal database of employees and an
effective tracking system to identify the most suitable persons for global postings.
The geocentric approach uses the best available managers for a business without regard for
their country of origin. In this example, the UK parent company uses natives of many countries
at company headquarters and at the U.S. subsidiary.
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A workplace induction introduces the international employee to the processes, procedures and
people that they will be encountering at work.
A new overseas worker may need a more detailed and longer induction to ensure they are
comfortable with unfamiliar workplace jargon, practices and procedures.
It is a good idea for employers to put an induction handbook together for all new employees.
Typically an induction handbook will include:
• A new employee can feel welcomed to a company if the welcome is extended by the
executive staff. When executives take the time to introduce themselves to the new hire class, it
gives the new hires a feeling that the company is accessible
• A human resources associate should take the new hire class on a tour of the office.
• An introduction to policies and procedures (both general and job-specific), the company
name directory and company history. It serves as a valuable reference tool and can be used as a
teaching aid during new employee orientation.
• Key contacts
Employers may also like to organize regular orientation catch-ups to support your new
employee during their first few weeks in the workplace. This is a good way to ensure that the
new employee is settling in and to provide them with any additional information or assistance
they may need.
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Researchers found that to a large degree culture shock follows the general pattern of a U-
shaped curve. This figure presents the relationship between culture shock and the length of
time the expatriate has been working in the host country9s culture. The 8U9 is divided into four
stages, viz., honeymoon, culture shock, adjustment and mastery.
Honeymoon stage: The expatriate and his family members are fascinated by the culture of the
host country, the accommodation, the transportation facilities, educational facilities to the
children etc., during the early stage of arrival. This stage lasts up to 2-3 months period.
Culture shock stage: The Company takes care of the new arrivals and completely neglects the
previously arrived employee and his family after three months. During this stage, the employee
has to take care of himself and his family members. Expatriate gets frustrated, confused and
unhappy with living and working abroad. His social relations are disillusioned during this stage.
He gets the shock of the existing culture.
5
Rao, P. (2009). International Business Environment (2nd ed., pp. 201-211). Mumbai, India: HPH.
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Adjustment stage: The expatriate slowly learns the values, norms, behavior, of the people,
their culture etc. He slowly adjusts himself to the culture of the foreign country.
Mastery stage: The expatriate after adjusting himself with the culture of the foreign country,
can concentrate on working efficiently. He learns and adapts to the new environment
completely and becomes like a citizen. He behaves and functions like a citizen at this stage.
Even the most valuable employees in the global companies fail to work and stay with the
company due to poor training and development efforts. Global companies should make not
only the employees, but also his family members more comfortable with the company, people
and the country. Hence, training and development assume greater significance in global
companies.
Training and development are the most important techniques of human resource development.
Training and development lead to:
Training and development for global jobs are necessary due to the following reasons:
To match employee specifications with the job requirements and organizational needs
To achieve organizational viability and the transformation process
To meet the challenges of technological advances
To understand the organizational complexity
To make the employee and his family members familiar with the language, customs,
traditions etc., of the foreign country.
After the employee is inducted into the company, his skills, knowledge and attitudes are
molded and developed. Training is the organized procedure by which people learn knowledge
and or skills for a definite purpose. Training improves changes and molds the employee9s
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knowledge, skills, behavior, aptitude and attitude towards the job and organizational
requirements.
EXPATRIATE FAILURE
Expatriate failure is usually defined as a posting that either ends prematurely or is considered
ineffective by senior management. Most research into the matter has come to the conclusion
that failure rates are high and can vary between 20% and 50% depending on the country.
Emerging countries such as those of Southeast Asia are considered higher risk than so-called
advanced nations.
The costs of failure have been estimated by numerous means with widely varying results.
Despite the lack of clarity, it is clear that a failed assignment in an overseas location is
considerably more expensive than one occurring closer to home.
6
Main Reasons For Expatriate Failure. (n.d.). In Chalre Associates. Retrieved March 5, 2017, from
http://www.chalre.com/hiring_managers/reasons_expat_failure.htm
7
Rajshekar, V. (n.d.). 7 Major Causes of Expatriate Failure in International HRM. In shareyouressays. Retrieved
March 5, 2017, from http://www.shareyouressays.com/94687/7-major-causes-of-expatriate-failure-in-
international-hrm
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dependent family members of wife might have been told that internet connectivity is available
but then finds it takes 6 months to install. All through this, she will probably discover that
suitable employment for herself is next to impossible in an emerging country-seriously
damaging her own long-term career. Expatriates marriages may fail due to the stress of
offshore postings. The consequence is that many expatriate postings are either terminated
early or the performance of the expatriate managers is reduced.
Southeast Asia has a rich variety of cultures. The differences in religion are one example.
Thailand is graciously Buddhist, Indonesia is gently (but intensely) Islamic and Philippines is
completely Catholic. As for Singaporeans, some say their only religion is work. Managing such
varied peoples obviously requires very different tactics.
If the expatriate is a middle manager in their home country and once relocated to Asia, they are
suddenly into the national spotlight as the Country Manager of a high profile multinational
organization. They may have more people reporting to them than ever and often have more
control over them.
The combination of greatly expanded responsibility and social status can be difficult to handle
for people lacking emotional maturity. It is not uncommon for expatriates to either destroy
their career opportunities and/or marriages by ignoring responsibilities and surrendering to
self-destructive temptations.
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Expatriates are generally motivated to be successful and excited about gaining international
experience. As a result, they often work long hours in the early part of their postings to do
<whatever it takes= to be successful.
The family members of the dependent expatriates are going through their own severe cultural
adjustments and may be demanding time and attention to help them through the difficulties.
The combination of emotional depression and physical exhaustion from higher stress levels and
overwork is a common problem for new expatriates can be also termed as burn-out. If the
situations are not improved, the subsequent result may be reduced effectiveness at work place.
Other Causes:
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1. There are substantial monetary costs associated with sending expatriates abroad, bringing
them back to the home country and finding replacements.
2. The poor performance of an expatriate may damage the firm9s image in the host country.
3. There are also personal tragedies of employees who may have sold their homes, left jobs
they liked and find themselves back in the home country branded as failures.
4. Damage to the firm9s reputation, loss of employee morale, and disrupted relationships with
local nationals.
Therefore care should be taken to choose the expatriate after careful selection based on the
specific assignment and the long-run plans of both the organization and the candidate, plans
must be made for the preparation, training and development of expatriate managers.
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REPATRIATION 8
Process of Repatriation
Repatriation generally refers to the termination of the overseas assignment and coming
back to the home country or to the country where the HQ is located or to the home subsidiary
from where he/she was expatriated So, Expatriation process also includes repatriation:
Therefore, Repatriation may be defined as the activity of bringing an expatriate back to the
home country and Repatriation is the final step in the expatriation process
Reasons of Repatriation?
8
Dowling, P. J., & Welch, D. E. (1999). International Human Resource Management (4th ed., pp. 160-178). New
Delhi, India: South Western Cenegage Learning.
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1. Preparation – Approx. 5-3 month before the expatriate returns to the home country, he or
she should be taken through a re-entry phase, followed by actual repatriation.
This involves developing plans for the future and collecting information about the new position
the expat is likely to occupy after returning home.
During the pre re-entry phase, the mentor can play an advisory role in finding the expat a
suitable position within the organization. The company may provide a checklist of items to be
considered while leaving the host country.
2. Physical Relocation – This stage involves removal of personal belongings, breaking ties with
colleagues and friends and traveling to the next posting, usually the home country.
Professional re-entry training should also be given to expat and his or her family that covers
social cultural contrast orientation, an updated political and social issues and changes in the
home country, job opportunities for the partner, an evaluation of the experiences in the host
culture and the psychological aspects of repatriation.
3. Transition – Phase in which the expatriate and his or her family readjust to their return to the
home country. Some companies hire relocation consults to assist in this phase. Typical activities
include acquiring temporary accommodation, making arrangements for housing and schooling,
performing necessary administrative tasks (e.g. renewing driver9s license, applying for medical
insurance, opening bank accounts)
4. Readjustment – This phase involves coping with reverse culture shock and the expatriate9s
career demands on the organization. Generally, the more the host country culture differs from
the home country culture, the more difficult the re integration process will be. Likewise, the
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more successful the expat was in the host culture, the more difficult it is to adjust to the work
environment at the home base.
• Work adjustment
o Role behavior
o Role clarity
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o Role discretion
o Role conflict
o Autonomy
o Responsibility
o Lower pay in absolute terms
o Drop in housing conditions
• Reestablishment of social networks in the home country may be difficult if, for e.g., the
expatriate and family are repatriated to another locality in the home country. It may be that
friends have moved away while the expatriate was on assignment and that other friends may
have joined the workforce and have no time for social activities
• Children may encounter social readjustment problems in school because they are not update
on latest trends, and may have problems adjusting to their home country educational system
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Economic integration 9
Economic integration is the unification of economic policies between different states through
the partial or full abolition of tariff and non-tariff restrictions on trade taking place among them
prior to their integration. This is meant in turn to lead to lower prices for distributors and
consumers with the goal of increasing the level of welfare, while leading to an increase of
economic productivity of the states.
There are varying levels of economic integration, including preferential trade agreements (PTA),
free trade areas (FTA), customs unions, common markets, economic and monetary unions, and
political unions. The more integrated the economies become, the fewer trade barriers exist,
and the more economic and political coordination there is between the member countries.
As with most things in economics, there are potential benefits and costs of economic
integration. The advantages of economic integration tend to fall into three categories: (1) trade
benefits, (2) employment, and (3) political cooperation. More specifically, economic integration
typically leads to a reduction in the cost of trade; improved availability and wider selection of
goods and services; and efficiency gains that lead to greater purchasing power. Employment
opportunities tend to improve as trade liberalization leads to market expansion, sharing of
technology, and cross-border flows of investment. Political cooperation can also improve with
stronger economic ties, which can help resolve conflicts peacefully and lead to more stability.
Despite the benefits, however, economic integration can also have a cost. Some of the
potential downsides include trade diversion and the erosion of national sovereignty. For
example, trade unions could divert trade away from non-members even if it were a more
economically efficient outcome. Also, members of economic unions are typically required to
adhere to rules on trade, monetary policy and fiscal policy, which are established by an external
policymaking body not elected by citizens of a particular country. Sovereignty, in fact, was one
of the key debates in the United Kingdom's decision to leave the European Union (EU) in 2016.
9
Economic Integration. (n.d.). In Investopedia. Retrieved April 3, 2017, from
http://www.investopedia.com/terms/e/economic-integration.asp
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There are several stages in the process of economic integration, from a very loose association
of countries in a preferential trade area, to complete economic integration, where the
economies of member countries are completely integrated.
A regional trading bloc is a group of countries within a geographical region that protect
themselves from imports from non-members in other geographical regions, and who look to
trade more with each other. Regional trading blocs increasingly shape the pattern of world
trade - a phenomenon often referred to as regionalism.
Stages of integration
10
Economic integration. (n.d.). In economicsonline. Retrieved April 3, 2017, from
http://www.economicsonline.co.uk/Global_economics/Economic_integration.html
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Preferential Trade Areas (PTAs) exist when countries within a geographical region agree to
reduce or eliminate tariff barriers on selected goods imported from other members of the area.
This is often the first small step towards the creation of a trading bloc. Agreements may be
made between two countries (bi-lateral), or several countries (multi-lateral).
Free Trade Areas (FTAs) are created when two or more countries in a region agree to reduce or
eliminate barriers to trade on all goods coming from other members. The North America Free
Trade Agreement (NAFTA) is an example of such a free trade area, and includes the USA,
Canada, and Mexico.
Customs Union
A customs union involves the removal of tariff barriers between members, together with the
acceptance of a common (unified) external tariff against non-members.
Countries that export to the customs union only need to make a single payment (duty), once
the goods have passed through the border. Once inside the union goods can move freely
without additional tariffs. Tariff revenue is then shared between members, with the country
that collects the duty retaining a small share.
Without a unified external tariff, trade flows would become distorted. If, for example,
Germany imposes a 10% tariff on Japanese cars, while France imposes a 2% tariff, Japan
would export its cars to French car dealers, and then sell them on to Germany, thereby
avoiding 80% of the tariff. This is avoided if a common tariff is shared between Germany
and France (and other members of the customs union.)
A common external tariff effectively removes the possibility of arbitrage and, some
would argue, is one of the fundamental building blocks of economic integration.
Union members must negotiate collectively with non-members or organisations like the
WTO as a single group of countries. While this is essential to maintain the customs
union, it means that members are not free to negotiate individual trade deals.
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Also, it makes little sense for a particular member to impose a tariff on the import of a
good that is not produced at all within a that country.
For example, the UK does not produce its own bananas, so a tariff on banana imports
only raises price and does not protect domestic producers. The current EU tariff on
bananas imported from outside the EU is 10.9%.
There is also a potential disadvantage to a single member in how the tariff revenue is
allocated. Members that trade relatively more with countries outside the union, such as
the UK, may not get their 'fair share' of tariff revenue.
The UK's status as a customs union member is one of the dilemmas facing the UK as a
result of Brexit. If it wishes to create individual trade deals with, say the USA and China,
it cannot retain its currret status as a full member of the customs union.
Common Market
A common (or single) market is the most significant step towards full economic integration. In
the case of Europe, the single market is officially referred to a the 'internal market'.
The key feature of a common market is the extension of free trade from just tangible goods, to
include all economic resources. This means that all barriers are eliminated to allow the free
movement of goods, services, capital, and labour.
In addition, as well as removing tariffs, non-tariff barriers are also reduced and eliminated.
For a common market to be successful there must also be a significant level of harmonisation of
micro-economic policies, and common rules regarding product standards, monopoly power and
other anti-competitive practices. There may also be common policies affecting key industries,
such as the Common Agricultural Policy (CAP) and Common Fisheries Policy (CFP).
Economic union is a term applied to a trading bloc that has both a common market between
members, and a common trade policy towards non-members, although members are free to
pursue independent macro-economic policies.
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The European Union (EU) is the best known Economic union, and came into force on November
1st 1993, following the signing of the Maastricht Treaty (formally called the Treaty on
European Union.)
Monetary Union
Monetary union is the first major step towards macro-economic integration, and enables
economies to converge even more closely. Monetary union involves scrapping individual
currencies, and adopting a single, shared currency, such as the Euro for the Euro-17 countries,
and the East Caribbean Dollar for 11 islands in the East Caribbean. This means that there is a
common exchange rate, a common monetary policy, including interest rates and the regulation
of the quantity of money, and a single central bank, such as the European Central Bank or the
East Caribbean Central Bank.
Fiscal Union
A fiscal union is an agreement to harmonise tax rates, to establish common levels of public
sector spending and borrowing, and jointly agree national budget deficits or surpluses. The
majority of EU states agreed a fiscal compact in early 2012, which is a less binding version of a
full fiscal union.
Economic and Monetary Union (EMU) is a key stage towards compete integration, and involves
a single economic market, a common trade policy, a single currency and a common monetary
policy.
Complete economic integration involves a single economic market, a common trade policy, a
single currency, a common monetary policy, together with a single fiscal policy, including
common tax and benefit rates – in short, complete harmonisation of all policies, rates, and
economic trade rules.
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European Union
The European Union is a unique economic and political union between 28 European countries
that together cover much of the continent.
The EU was created in the aftermath of the Second World War. The first steps were to foster
economic cooperation: the idea being that countries that trade with one another become
economically interdependent and so more likely to avoid conflict.
The result was the European Economic Community (EEC), created in 1958, and initially
increasing economic cooperation between six countries: Belgium, Germany, France, Italy,
Luxembourg and the Netherlands. Since then, a huge single market has been created and
continues to develop towards its full potential.
What began as a purely economic union has evolved into an organization spanning policy areas,
from climate, environment and health to external relations and security, justice and migration.
A name change from the European Economic Community (EEC) to the European Union (EU) in
1993 reflected this.
The EU is based on the rule of law: everything it does is founded on treaties, voluntarily and
democratically agreed by its member countries.
The EU is also governed by the principle of representative democracy, with citizens directly
represented at Union level in the European Parliament and Member States represented in the
European Council and the Council of the EU.
The EU has delivered more than half a century of peace, stability and prosperity, helped raise
living standards and launched a single European currency: the euro. In 2012, the EU was
awarded the Nobel Peace Prize for advancing the causes of peace, reconciliation, democracy
and human rights in Europe.
Thanks to the abolition of border controls between EU countries, people can travel freely
throughout most of the continent. And it has become much easier to live, work and travel
abroad in Europe.
The single or 'internal' market is the EU's main economic engine, enabling most goods, services,
money and people to move freely. Another key objective is to develop this huge resource also
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in other areas like energy, knowledge and capital markets to ensure that Europeans can draw
the maximum benefit from it.
One of the EU's main goals is to promote human rights both internally and around the world.
Human dignity, freedom, democracy, equality, the rule of law and respect for human rights:
these are the core values of the EU. Since the Lisbon Treaty's entry in force in 2009, the EU's
Charter of Fundamental Rights brings all these rights together in a single document. The EU's
institutions are legally bound to uphold them, as are EU governments whenever they apply EU
law.
The enlarged EU remains focused on making its governing institutions more transparent and
democratic. More powers have been given to the directly elected European Parliament, while
national parliaments play a greater role, working alongside the European institutions. In turn,
European citizens have an ever-increasing number of channels for taking part in the political
process.
Countries
The EU was not always as big as it is today. When European countries started to cooperate
economically in 1951, only Belgium, Germany, France, Italy, Luxembourg and the Netherlands
participated.
Over time, more and more countries decided to join. The Union reached its current size of 28
member countries with the accession of Croatia on 1 July 2013.
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Austria Italy
Belgium Latvia
Bulgaria Lithuania
Croatia Luxembourg
Cyprus Malta
Czech Republic Netherlands
Denmark Poland
Estonia Portugal
Finland Romania
France Slovakia
Germany Slovenia
Greece Spain
Hungary Sweden
Ireland United Kingdom
The euro (€) is the official currency of 19 out of 28 EU member countries. These countries are
collectively known as the Eurozone.
The euro is the most tangible proof of European integration – the common currency in 19 out
of 28 EU countries and used by some 338.6 million people every day. The benefits of the
common currency are immediately obvious to anyone travelling abroad or shopping online on
websites based in another EU country.
EU monetary cooperation
The Economic and Monetary Union involves the coordination of economic and fiscal policies, a
common monetary policy and the euro as the common currency. The euro was launched on 1
January 1999 as a virtual currency for cash-less payments and accounting purposes. Banknotes
and coins were introduced on 1 January 2002.
The euro (€) is the official currency of 19 out of 28 EU member countries. These countries are
collectively known as the Eurozone.
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Eurozone Countries:
Spain
A single currency offers many advantages, such as eliminating fluctuating exchange rates and
exchange costs. Because it is easier for companies to conduct cross-border trade and the
economy is more stable, the economy grows and consumers have more choice. A common
currency also encourages people to travel and shop in other countries. At global level, the euro
gives the EU more clout, as it is the second most important international currency after the US
dollar.
The independent European Central Bank is in charge of monetary issues in the EU. Its main goal
is to maintain price stability. The ECB also sets a number of key interest rates for the euro area.
Although taxes are still levied by EU countries and each country decides upon its own budget,
national governments have devised common rules on public finances to be able to coordinate
their activities for stability, growth and employment.
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The economic crisis has prompted intense and sustained action by the EU's national
governments, the European Central Bank and the Commission since it erupted worldwide in
2008. All have been working closely together to support growth and employment, protect
savings, maintain a flow of affordable credit for businesses and households, ensure financial
stability, and put in place a better governance system for the future.
EU symbols
The EU is recognisable by several symbols, the most well-known being the circle of yellow stars
on a blue background.
The European flag symbolises both the European Union and, more broadly, the identity and
unity of Europe.
It features a circle of 12 gold stars on a blue background. They stand for the ideals of unity,
solidarity and harmony among the peoples of Europe.
The number of stars has nothing to do with the number of member countries, though the circle
is a symbol of unity.
The EU budget is funded from sources including a percentage of each member country's gross
national income. It is spent on efforts as diverse as raising the standard of living in poorer
regions and ensuring food safety. The euro is the common currency of most EU countries.
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SAARC
INTRODUCTION
Established
1985
Membership
Eight states―Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka.
Six observers—China, Japan, European Union, Republic of Korea, United States, Iran
The idea of regional cooperation in South Asia was first raised in November 1980. After
consultations, the foreign secretaries of the seven founding countries—Bangladesh, Bhutan,
India, Maldives, Nepal, Pakistan, and Sri Lanka—met for the first time in Colombo in April 1981.
This was followed a few months later by a meeting of the Committee of the Whole, which
identified five broad areas for regional cooperation. The foreign ministers, at their first meeting
in New Delhi in August 1983, adopted the Declaration on South Asian Association for Regional
Cooperation (SAARC) and formally launched the Integrated Program of Action (IPA) in the five
agreed areas of cooperation: agriculture; rural development; telecommunications;
meteorology; and health and population activities. Later, transport; postal services; scientific
and technological cooperation; and sports, arts, and culture were added to the IPA. Afghanistan
became the newest member of SAARC at the 13th annual summit in 2005. China and Japan
were granted observer status at the same.
The South Asian Association for Regional Cooperation (SAARC) comprises Afghanistan,
Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka. SAARC is a
manifestation of the determination of the peoples of South Asia to work together towards
finding solutions to their common problems in a spirit of friendship, trust and understanding
and to create an order based on mutual respect, equity and shared benefits. The main goal of
the Association is to accelerate the process of economic and social development in member
states, through joint action in the agreed areas of cooperation.
EVOLUTION
The idea of regional cooperation in South Asia was first mooted in November 1980. After
consultations, the Foreign Secretaries of the seven countries met for the first time in Colombo,
in April 1981. This was followed, a few months later, by the meeting of the Committee of the
Whole, which identified five broad areas for regional cooperation. The Foreign Ministers, at
their first meeting in New Delhi, in August 1983, formally launched the Integrated Programme
of Action (IPA) through the adoption of the Declaration on South Asian Regional Cooperation
(SARC).
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At the First Summit held in Dhaka on 7-8 December 1985, the Charter establishing the South
Asian Association for Regional Cooperation (SAARC) was adopted.
OBJECTIVES
The objectives, principles and general provisions, as mentioned in the SAARC Charter, are as
follows :
- To promote the welfare of the peoples of South Asia and to improve their quality of life;
- To accelerate economic growth, social progress and cultural development in the region and to
provide all individuals the opportunity to live in dignity and to realize their full potentials;
- To promote and strengthen collective self-reliance among the countries of South Asia;
- To contribute to mutual trust, understanding and appreciation of one another's problems;
- To promote active collaboration and mutual assistance in the economic, social, cultural,
technical and scientific fields;
- To strengthen cooperation with other developing countries;
- To strengthen cooperation among themselves in international forums on matters of common
interests; and
- To cooperate with international and regional organizations with similar aims and purposes.
PRINCIPLES
- Cooperation within the framework of the Association is based on respect for the principles of
sovereign equality, territorial integrity, political independence, non-interference in the internal
affairs of other states and mutual benefit.
- Such cooperation is to complement and not to substitute bilateral or multilateral cooperation.
- Such cooperation should be consistent with bilateral and multilateral obligations of the
member states.
1. Council: At the top, there is the Council represented by the heads of the government of the
member countries. The council the apex policy making body. It meets once in 2 years time.
2. Council of Minister: It is to assist the council. It is represented by the foreign minister of the
member countries. Its functions include:
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1. Formulation of policies
2. Review of functioning
3. Deciding new areas of cooperation
4. Chalk our additional mechanism
5. Decide about general issues of common of interest of the SAARC member.
4. Programming Committee: It consist of the senior official of the member governments. Its
functions include:
5. Technical Committee: It consist of the represented of the member nations. Its function are:
The Technical Committee convers the areas such as: Agriculture, Communication, Environment,
Rural Development, Health and Population, Science and Technology, Tourism and Transport.
3. Work as communication link between the SAARC and other international forum.
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BRICS
BRICS is the acronym for an association of five major emerging national economies: Brazil,
Russia, India, China and South Africa. Originally the first four were grouped as "BRIC" (or "the
BRICs"), before the induction of South Africa in 2010. The BRICS members are all leading
developing or newly industrialized countries.
As of 2015, the five BRICS countries represent over 3.6 billion people, or half of the world
population; all five members are in the top 25 of the world by population, and four are in the
top 10.
History
The term "BRIC" was coined in 2001 by then-chairman of Goldman Sachs Asset Management,
Jim O'Neill, in his publication Building Better Global Economic BRICs. The foreign ministers of
the initial four BRIC states (Brazil, Russia, India, and China) met in New York City in September
2006 at the margins of the General Debate of the UN General Assembly, beginning a series of
high-level meetings. A full-scale diplomatic meeting was held in Yekaterinburg, Russia, on 16
June 2009.
About BRICS
– BRICS is a acronym for an association of five major emerging national economies: Brazil,
Russia, India, China and South Africa
– Originally called as BRIC as South Africa was not included till 2010.
– The term "BRICS" was coined in 2001 by then-chairman of Goldman Sachs Asset
Management, Jim O'Neill
Importance of BRICS
– As of 2014, the five BRICS countries represent almost 3 billion people, or approximately 40%
of the world population.
– The five nations have a combined nominal GDP of US$16.039 trillion, equivalent to
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Summits
Consensus on improving the global economic situation and reforming financial institutions.
BRIC nations announced the need for a new global reserve currency, which would have to be
"diversified, stable and predictable"
South Africa officially became a member nation. Iran and nuclear weapons, development, the
furtherance of the BRIC as an international body, the global economic situation at the time,
reform of financial institutions, the financial G20, and cooperation and issues related to global
governance.
A proposal to create a joint BRICS development bank that would finance investments in
developing nations
Creation of two financial institutions: the New Development Bank (NDB) to finance
infrastructure and <sustainable development= projects, with $50 billion in capital to start with,
and the $100 billion Contingent Reserve Arrangement (CRA), to tide over members in financial
difficulties.
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The 7th BRICS summit was the seventh annual diplomatic summit of the head of states or
government of the BRICS member states. It was held in the Russian city of Ufa in Bashkortostan
on 8–9 July 2015
8. The 2016 BRICS summit was the eighth annual BRICS summit, an international relations
conference attended by the heads of country or heads of government of the five member
countries Brazil, Russia, India, China and South Africa. The summit was held from 15 to 16
October 2016 at the Taj Exotica hotel in Benaulim, Goa, India.
1. The dominance of China in BRICS is problem for others. The Chinese economy is now not only
the second largest in the world but also larger than the economies of all the BRICS together.
2. China's political aspiration creates a challenges that has made it difficult for it to make
consensus.
3. China9s manipulation of its currency has resulted in significant problems for the
manufacturing sectors of other emerging powers. Central banks of other countries have
registered protest against undervalued yuan
5. BRICS is a loose grouping of countries that share interests in particular areas but that play by
different rules. It is not a formal international alliance.
6. It maintains a low profile on security issues. BRICS will never attempt to make the group into
a traditional security framework.
7. With the exception of the NDB and the CRA, the BRICS framework has not proven very
efficient or substantive.
8. The BRICS have little in common. The Chinese economy is 28 times the size of South Africa9s.
Income per person in India is one-tenth that in Russia.
9. Brazil, India, South Africa are democratic countries while Russia, China are authoritarian
regimes
10. Russia, Brazil and South Africa export different commodities, while China exports
manufactured goods and India exports services.
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BRICS Bank
Structure
- New Development Bank will have an initial subscribed capital of $50 billion which will be
raised to $100 billion.
- The five members will have an equal share for each in the bank, so no one member dominates
the institution.
- Headquarters – Shanghai
- Bank will have African Regional Center in South Africa
- India will assume the first presidency of the bank.
- Chairman of Board of governance will be Russian
- The emergency reserve fund - which was announced as a "Contingency Reserve Arrangement"
will also have $100bn and will help developing nations avoid short-term liquidity pressures.
- It will have $41 billion from China, $5 billion from South Africa and $ 18 billion from remaining
nations.
1. Global financial institutions like IMF and world bank are dominated by U.S and western
countries
2. IMF and world bank follows different voting power based on quota system. Though China is
second largest economy after U.S it has fewer voting rights.
3. The financial institution created by BRICS will reduce the importance of US dollar as a global
currency and eventually it will increase importance of Yuan
4. IMF cash assistance program is conditional. If a country's foreign policy clashes with US then
it will be difficult to obtain a loan.
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In 1994, the North American Free Trade Agreement (NAFTA) came into effect, creating one of
the world9s largest free trade zones and laying the foundations for strong economic growth and
rising prosperity for Canada, the United States, and Mexico. Since then, NAFTA has
demonstrated how free trade increases wealth and competitiveness, delivering real benefits to
families, farmers, workers, manufacturers, and consumers.
The North American Free Trade Agreement (NAFTA) is an agreement signed by Canada, Mexico,
and the United States, creating a trilateral trade bloc in North America. The agreement came
into force on January 1, 1994. It superseded the Canada–United States Free Trade Agreement
between the U.S. and Canada.
NAFTA has two supplements: the North American Agreement on Environmental Cooperation
(NAAEC) and the North American Agreement on Labor Cooperation (NAALC).
Most economic analyses indicate that NAFTA has been a small net positive for the United
States, large net positive for Mexico and had an insignificant impact on Canada.
The Agreement
The North American Free Trade Agreement (NAFTA) is a comprehensive agreement that
sets the rules for international trade and investment between Canada, the United States, and
Mexico. The Agreement is a complex and lengthy document that includes eight sections, 22
chapters, and some 2,000 pages. Some of the most important provisions are highlighted below.
The elimination of duties on thousands of goods crossing borders within North America.
Phased-in tariff reductions – now complete – and special rules for agricultural,
automotive, and textile and apparel products.
Important rights for NAFTA services providers and users across a broad spectrum of
sectors.
Special commitments regarding telecommunications and financial services.
Formal dispute resolution processes that help resolve differences that arise in the
interpretation or application of NAFTA9s rules.
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North American Free Trade Agreement (NAFTA). (n.d.). In USTR. Retrieved April 3, 2017, from
https://ustr.gov/trade-agreements/free-trade-agreements/north-american-free-trade-agreement-nafta
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NAFTA. (n.d.). In Nafta Now. Retrieved April 3, 2017, from http://www.naftanow.org/default_en.asp
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Commitment to treat each others9 investors and their investments in the territory of the
host NAFTA country no less favorably than their own domestic investors.
Commitment to provide NAFTA investors with the best treatment given to foreign
investors from beyond North America.
A transparent and binding dispute resolution mechanism specially designed to deal with
investment.
Easier access for business professionals in hundreds of different professions so that they
can travel for business throughout the continent.
Rules of Origin
NAFTA rules of origin are used to determine whether a good is eligible for preferential
treatment under NAFTA.
At various times since NAFTA came into effect, the partners have implemented
measures to liberalize or expand the list of products that qualify for preferential
treatment. Since 2005, for example, the NAFTA partners have implemented two sets of
changes to make it easier for traders to qualify for duty-free treatment under NAFTA.
Side Agreements
The NAFTA partners also negotiated two side agreements: the North American Agreement on
Environmental Cooperation and the North American Agreement on Labor Cooperation.
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The NAFTA partners signed a parallel agreement addressing environmental issues, the North
American Agreement on Environmental Cooperation (NAAEC). Under the NAAEC, the United
States, Canada and Mexico have committed to take certain steps to protect the environment,
including the obligation that each of the parties will not fail to effectively enforce its
environmental laws. A party9s failure to meet this environmental obligation is subject to the
same type of dispute resolution mechanism that is included in the NAFTA for commercial
obligations. In addition, the NAAEC has created a mechanism that allows any citizen or non-
governmental organization to make a submission concerning whether a party is failing to
effectively enforce its environmental law. In contrast, commercial obligations are not subject to
this type of independent review.
Under the NAAEC, the parties also agreed to work cooperatively to address regional
environmental concerns, to help prevent potential trade and environmental conflicts, and to
promote the effective enforcement of environmental law, among other things. In order to
assist with the parties9 efforts to fulfill these commitments, the partners created an
international institution, the Commission for Environmental Cooperation (CEC).
The NAFTA partners signed a parallel agreement on labor cooperation designed to promote the
effective enforcement of each country9s labor laws and regulations and to facilitate further
cooperation between NAFTA partners on labor matters.
The North American Agreement on Labor Cooperation (NAALC) established the Commission for
Labor Cooperation (CLC), consisting of a Ministerial Council and a Secretariat. In the
implementation of the NAALC, the CLC is assisted by National Administrative Officers (NAOs) in
each of the three countries.
The current work program for labor cooperation focuses on occupational safety and health,
employment and job training, labor law, and workers9 rights and productivity.
Dispute Settlement
The North American Free Trade Agreement (NAFTA) includes impartial, rules-based
dispute resolution mechanisms to provide the assurance of fairness and predictability that
North American businesses need to engage in commercial exchanges. Under NAFTA, our
businesses can trade and invest with the knowledge that rules exist to ensure fair treatment
and that procedures are in place to settle disputes impartially, on the rare occasions when they
occur.
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Today, the vast majority of trade and investment among the NAFTA partners takes place in
accordance with the clear and well-established rules of NAFTA and the World Trade
Organization. While disputes rarely emerge, NAFTA directs those concerned to try to resolve
their differences through NAFTA committees and working groups or through other
consultations. If no mutually acceptable solution is found, NAFTA also provides for specific
formal mechanisms as follows:
Chapter 19 offers exporters and domestic producers an effective and direct route to
make their case and appeal the results of trade-remedy investigations before an
independent and objective binational panel. This process is an alternative to judicial
review of such decisions before domestic courts. This mechanism has been effective in
providing for the efficient and impartial review of trade remedy determinations made
by the investigating authorities of all three NAFTA partners. To date, panels have
sustained some decisions made by domestic investigating authorities, but have also
remanded others for reconsideration.
The NAFTA Secretariat is responsible for the administration of the Chapter 19 dispute
settlement process.
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WTO
The World Trade Organization (WTO) is an intergovernmental organization which regulates
international trade. The WTO officially commenced on 1 January 1995 under the Marrakesh
Agreement, signed by 123 nations on 15 April 1994, replacing the General Agreement on Tariffs
and Trade (GATT), which commenced in 1948. The WTO deals with regulation of trade between
participating countries by providing a framework for negotiating trade agreements and a
dispute resolution process aimed at enforcing participants' adherence to WTO agreements,
which are signed by representatives of member governments and approved by their
parliaments.
Objectives
World Trade organization (WTO) has a crucial role to play in the international trade, global
economics, political and legal issues arising in the international business because of the
globalization.
WTO has emerged as a world9s most powerful institutions for reducing trade related barriers
between the countries and opening new markets. World Trade Organization is the only
International governing body that World Trade Organization replaces General Agreement on
Tariffs and Trade (GATT) which was created in the year 1948.
The goal of WTO is to provide a fair platform for its member countries to help in services like
exports, imports and conduct their business in a peaceful manner.
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The advantage to the countries being members in the WTO is that that they lower trade related
barriers among themselves. In contrary to this the countries which are not part of WTO must
negotiate trade related agreements independently with their trading partners.
Almost all the industrial and agriculture sectors have been affected by trade barriers between
the countries. USA considered being a free trade country because of less number of trade
barriers for importing, but still it has got many.
Overall WTO was set up to play a very important role in the world economics though settling
trade related disputes through rules, regulations and consensus based agreement mechanisms
that would prevent trade related wars between powerful countries.
Through resolving trade related disputed WTO has got the potential to maintain world peace
and bilateral relations between its member countries thorough following negotiations,
consultations and mediations.
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Export 13
An export is a function of international trade whereby goods produced in one country are
shipped to another country for future sale or trade. The sale of such goods adds to the
producing nation's gross output. If used for trade, exports are exchanged for other products or
services in other countries.
Exports are one of the oldest forms of economic transfer and occur on a large scale between
nations that have fewer restrictions on trade, such as tariffs or subsidies. Most of the largest
companies operating in advanced economies derive a substantial portion of their annual
revenues from exports to other countries. The ability to export goods helps an economy to
grow, by selling more overall goods and services. One of the core functions of diplomacy and
foreign policy within governments is to foster economic trade in ways that benefit both parties
involved.
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Export. (n.d.). In Investopedia. Retrieved April 3, 2017, from http://www.investopedia.com/terms/e/export.asp
101
Import 14
An import is a good or service brought into one country from another. The word "import" is
derived from the word "port," since goods are often shipped via boat to foreign countries.
Along with exports, imports form the backbone of international trade; the higher the value of
imports entering a country, compared to the value of exports, the more negative that country's
balance of trade becomes.
Countries are most likely to import goods that domestic industries cannot produce as efficiently
or cheaply but may also import raw materials or commodities that are not available within its
borders. For example, many countries have to import oil because they cannot produce it
domestically or cannot produce enough of it to meet demand. Free trade agreements and tariff
schedules often dictate what goods and materials are less expensive to import. With
globalization and the increasing prevalence of free trade agreements between the United
States and other countries and trading blocks, U.S. imports have increased from $473 billion in
1989 to $2.24 trillion in 2015.
Export Procedure
• Preliminaries
• Prospecting importer
• Shipment
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Import. (n.d.). In Investopedia. Retrieved April 3, 2017, from http://www.investopedia.com/terms/i/import.asp
102
1. Preliminaries
To get an edge over the competition in export trading, a firm must have all the relevant analysis
of its competencies. The first step is to think about the resources and knowledge a firm9s
business already has. The below exhibit provides an analytical approach for a firm to determine
its competitive ability to access global markets through export trade.
In exporting a company need not do any marketing or production overseas, it just exports a
product from its home base. Often, the exported product is fundamentally the same as the one
marketed in the home market. Many export transactions, particularly initial export
transactions, begin with the receipt of an inquiry from abroad that is followed by a request for a
quotation. Based on the inquiry made by the prospective importer a proposal letter is sent to
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the importer. An import proposal is more than just a price quote or a brochure. The proposal is
customized according to the specific importers needs and explains in detail what exporter has
to offer and how it will benefit the importer.
Exporters profile
Description of products
Pricing info
Terms of sale
Payment terms
4. Concluding export deal
If the importer is satisfied with the export proposal, the exporter must acknowledge the export
order and then proceed to examine carefully terms of deal in detail in respect of pricing,
specification, pre-shipment inspection, payment conditions, special packaging, labeling and
marketing requirements, shipment and delivery date, marine insurance, documentation etc. to
be in safer position the exporter should conclude the deal with a written contract and not just
verbal agreements, this is important to avoid future disputes. For this purpose, export contract
should be carefully drafted incorporating comprehensive terms and all relevant and important
conditions of the trade deal. The contract should be carefully scrutinized to ensure compliance
with legal provisions of both the countries of export and import. Necessary amendments should
be made to abide by the legislative provisions.
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After confirmation of the export order and contract execution, immediate step should be for
procurement or manufacture of the export goods. In executing the order the following are key
elements to be focused on
a. Pre-shipment inspection
Pre-shipment inspection is undertaken by the exporter to ensure that exports comply
with government regulations. A physical inspection of goods is carried out to establish
the exact nature of the goods; invoice and other documents are then scrutinized. Pre-
shipment is mandatory as per government norms to identify correct assessment of
customs duties and taxes of the shipment value for foreign exchange control. Pre-
shipment inspection is also key to helping governments maintain compliance with the
WTO Agreement on Customs Valuation. The inspection is carried out by expert agencies
and once the inspection is complete a certificate is issued in compliance with rules and
regulation of the exporting countries.
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Section A
1. Define International Business.
2. How international business is different from international trade?
3. Define international marketing.
4. Why is India the world9s favorite outsourcing destination?
5. Give the meaning of International relations
6. What is outsourcing?
7. Define globalization?
8. Is globalization the solution to profitability?
9. Give the meaning of open market.
10. Enlist a few trade barriers in globalization process.
11. Give three reasons why it is important to study global business.
Section B
12. Mention the advantages and disadvantages of outsourcing.
13. Outline key risks involved in international business.
14. Summarize the differences between international and domestic business.
15. Enlist the advantages and disadvantages of joint venture.
16. Elucidate various approaches to International Business.
17. Briefly explain the features of globalization
18. What are the pros and cons of globalization?
Section C
19. Describe the Nature of International Business
20. Write a note on forms of International Business
21. Explain the Objectives of International Business
22. Discuss various modes of entry into international business
23. Elucidate the barriers to globalization in India
24. What are the essential conditions for Globalization? Explain.
25. Explain the importance of globalization.
26. Explain the positive implications of globalization on Indian economy.
27. Discuss the consequences of globalization on Indian culture.
106
Section A
1. What is Multi National Corporation?
2. Why do firm internationalize?
3. List any four MNCs operating in India.
4. State any two differences between MNC and TNC
5. Define international company.
6. What is a global company?
7. Give the meaning of TNC.
8. Name any four Indian MNCs.
9. What is SBU?
10. Define Polycentric firm.
11. What is functional organizational structure? Give examples.
Section B
12. What is Matrix organization? Explain its merits and demerits.
13. Analyze the role of MNCs in development of Indian business.
14. Bring out the benefits and limitations of MNCs to Home country
15. What are the political challenges faced by MNCs in International business?
16. Briefly explain the features of MNCs.
17. Enlist advantages and disadvantages of MNCs to Host country.
18. Highlight the challenges faced by MNCs in India.
Section C
19. Discuss the differences between domestic company and international company
20. Elaborate the role of MNCs in development of International business.
21. Explain in detail Geographic organizational structure.
22. Critically examine Product organization structure.
23. Discuss various types of MNCs.
107
Section A
1. What is the difference between data and information?
2. Define international marketing research.
3. Define marketing intelligence
4. What is the difference between a data warehouse and data mining?
5. Define marketing research.
Section B
6. Summarize the differences between secondary data and primary data.
7. What happens if an international company does not takes up marketing research prior to
entering a new market?
8. What are the various information required by International business firms?
Section C
9. What are some advantages and disadvantages of telephone interviews, mail questionnaires,
face-to-face interviews, and online interviews?
10. Explain the importance of International marketing research.
11. Describe the various primary data collection techniques.
12. Explain the role of a marketing information system in international marketing decision making.
13. Describe various secondary data sources.
14. Enumerate the limitations of International marketing research.
15. Elucidate process of International Marketing Information System.
16. Analyze the need of International Marketing Intelligence
17. Explain the steps involved in marketing research.
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Section A
1. Define IHRM.
2. What do you mean by global recruitment?
3. What is a selection process?
4. Give the meaning of induction.
5. Define orientation.
6. Define training.
7. Who is an expatriate?
8. What do you mean by repatriation?
9. What is a cross cultural training?
Section B
10. What are the similarities and differences between domestic and international HRM?
11. Explain the process of repatriation of an employee.
12. Why induction and orientation for international employees is important?
13. Describe the need and importance of training for global jobs.
Section C
14. What are the various reasons for the failure of the expatriate?
15. Explain in details various sources of global recruitment.
16. What are the various international adjustment stages an expatriate goes through? Explain in
details.
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Section A
1. What do you mean by economic integration?
2. Define trading block.
3. Expand SAARC, BRICS, NAFTA
4. Define Export.
5. Define Import
Section B
6. What is economic integration? What are the various kinds of economic integration?
7. What are the advantages and disadvantages of economic integration?
8. What are the various activities of the European Union?
9. Discuss Export trade procedure
10. Discuss Import Procedure
Section C
11. Write a note on the Following:
European Union and SAARC
12. Write a short note on NAFTA and its Objective.
13. State the objectives of SAARC and details note about SAARC.
14. Explain the role of WTO in the development of International Business.
110
IV Semester B.Com
Maximum Marks : 70
Duration : 3 hours
Distribution of Marks
111
112