Spring 2012 Master of Business Administration - Semester 4 MB0053: International Business Management (Book ID: B1315) ASSIGNMENT- Set 1

Q 1 - What is globalization and what are its benefits?

Ans - Globalization is a process where businesses are dealt in markets around the world, apart from the local and national markets. According to business terminologies, globalization is defined as the worldwide trend of businesses expanding beyond their domestic boundaries. It is advantageous for the economy of countries because it promotes prosperity in the countries that embrace globalization. In this section, we will understand globalization, its benefits and challenges. Benefits of globalization The merits and demerits of globalization are highly debatable. While globalization creates employment opportunities in the host countries, it also exploits labor at a very low cost compared to the home country. Let us consider the benefits and ill-effects of globalization. Benefits of globalization are as follows: 1. Promotes foreign trade and liberalization of economies. Increases the living standards of people in several developing countries through capital investments in developing countries by developed countries. Benefits customers as companies outsource to low wage countries . Outsourcing helps the companies to be competitive by keeping the cost low, with increased 2. Productivity. Promotes better education and jobs. Leads to free flow of information and wide acceptance of foreign products, ideas, ethics, and best practices and culture. Provides better quality of products, customer services, and standardized delivery models across countries. Gives better access to finance for corporate and sovereign borrowers. Increases business travel, which in turn leads to a flourishing travel and hospitality industry across the world.
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 Increases sales as the availability of cutting edge technologies and production techniques decrease the cost of production. Provides several platforms for international dispute resolutions in business, which facilitates international trade.

Q2 - Discuss in brief the Absolute and comparative cost advantage theories.

Ans Absolute Advantage: Adam Smith (a social philosopher and a pioneer of political economics) argued that nations differ in their ability to manufacture goods efficiently and he saw that a country gains by trading. If the two countries exchanged two goods at ratio of 1:1, country I gets one unit of goods B by sacrificing only 10 units of labor, whereas it has to give up 20 units of labor if it produced the goods itself. In the same manner country II gives up only 10 units of labour to get one units of goods A, whereas it has to give 20 units of labour if it was made by itself. Hence it was understood that both countries had large amount of both goods by trading.

Comparative Advantage: Ricardo (English political economist) questioned Smiths theory stating if one country is more productive than the other in all lines of production and if country I can produce all goods with less labour costs, will there be a need for the countries to trade. The reply was affirmative. He used England and Portugal as examples in his demonstration the two goods they produced being wine and cloth. This case is explained using following table:

Labour cost of production (in hours) 1 unit of wine Portugal England 70 110 1 unit of cloth 80 90

According to him Portugal has an advantage in both areas of manufacture. To demonstrate that trade between both countries will lead to gains, the concept of opportunity cost (OC) is introduced.
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Q3. How is culture an integral part of international business. What are its elements?
Ans - Culture is defined as the art and other signs or demonstrations of human customs, civilization, and the way of life of a specific society or group. Culture determines every aspect that is from birth to death and everything in between it. It is the duty of people to respect other cultures, other than their culture. Research shows that national cultures generally characterize the dominant groups values and practices in society, and not of the marginalized groups, even though the marginalized groups represent a majority or a minority in the society. Culture is very important to understand international business. Culture is the part of environment, which human has created, it is the total sum of knowledge, arts, beliefs, laws, morals, customs, and other abilities and habits gained by people as part of society. Culture is an important factor for practicing international business. Culture affects all the business functions ranging from accounting to finance and from production to service. This shows a close relation between culture and international business. Cultural elements that relate business The most important cultural components of a country which relate business transactions are: Language. Religion. Conflicting attitudes.

Cross cultural management is defined as the development and application of knowledge about cultures in the practice of international management, when people involved have diverse cultural identities. International managers in senior positions do not have direct interaction that is face-to-face with other culture workforce, but several home based managers handle immigrant groups adjusted into a workforce that offers domestic markets. The factors to be considered in cross cultural management are:

Cross cultural management skills The ability to demonstrate a series of behavior is called skill. It is functionally linked to achieving a performance goal.

The most important aspect to qualify as a manager for positions of international responsibility is communication skills. The managers must adapt to other culture and have the ability to lead its members. The managers cannot expect to force members of other culture to fit into their cultural customs, which is the main assumption of cross cultural skills learning. Any organization that tries to enforce its behavioral customs on unwilling workers from another culture faces conflict. The manager has to possess the skills linked with the following: Providing inspiration and appraisal systems. Establishing and applying formal structures. Identifying the importance of informal structures. Formulating and applying plans for modification. Identifying and solving disagreements.

Handling cultural diversity Cultural diversity in a work group offers opportunities and difficulties. Economy is benefited when the work groups are managed successfully. The organizations capability to draw, save, and inspire people from diverse cultures can give the organization spirited advantages in structures of cost, creativity, problem solving, and adjusting to change Cultural diversity offers key chances for joint work and co-operative action. Group work is a joint venture where, the production of two or more individuals or groups working in cooperation is larger than the combined production of their individual work.

Q4. Describe the tools and methods of country risk analysis.

Ans - Country risk analysis is the evaluation of possible risks and rewards from business experiences in a country. It is used to survey countries where the firm is engaged in international business, and avoids countries with excessive risk. With globalization, country risk analysis has become essential for the international creditors and investors. Country Risk Analysis (CRA) identifies imbalances that increase the risks in a cross-border investment. CRA represents the potentially adverse impact of a countrys environment on the multinational corporations cash flows and is the probability of loss due to exposure to the political, economic, and social upheavals in a foreign country. All business dealings involve risks. An increasing number of companies involving in external trade indicate huge business opportunities and promising markets. Methods of Country risk Analysis:
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Fully qualitative method The fully qualitative method involves a detailed analysis of a country. It includes general discussion of a countrys economic, political, and social conditions and prediction. Fully qualitative method can be adapted to the unique strengths and problems of the country undergoing evaluation. Structured qualitative method The structured method uses a uniform format with predetermined scope. In structured qualitative method, it is easier to make comparisons between countries as it follows a specific format across countries. This technique was the most popular among the banks during the late seventies. Checklist method The checklist method involves scoring the country based on specific variables that can be either quantitative, in which the scoring does not need personal judgment of the country being scored or qualitative, in which the scoring needs subjective determinations. Delphi technique The technique involves a set of independent opinions without group discussion. As applied to country risk analysis, the MNC can assess definite employees who have the capability to evaluate the risk characteristics of a particular country. Inspection visits Involves travelling to a country and conducting meeting with government officials, business executives, and consumers. These meetings clarify any vague opinions the firm has about the country. Other quantitative methods The quantitative models used in statistical studies of country risk analysis can be classified as discriminate analysis, principal component analysis, and logic analysis and classification and regression tree method. Tools of country risk analysis: The risk management demands a regular follow up regarding governmental policies, external and internal environment, outlook provided by rating agencies, and so on. Following are the tools recommended: Chain of value Includes the main countries that sustain trade relationships with the nation, broken by sectors and products. Strength and weakness chart Focus the key aspects that warn the country. Table of financial markets performance Follow up the behavior of bonds and stocks already issued and to be issued. Table of macroeconomic variables Provides alert signals when the behavior of any ratio presents a relevant change.

Q5. Write short notes on:

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a. Spot and forward contracts

A spot contract is a binding obligation to buy or sell a certain amount of foreign currency at the current market rate, for settlement in two business days' time. To enter into a spot deal you advise us of the amount, the two currencies involved and which currency you would like to buy or sell. For a company to use only the spot market for its foreign currency requirements may be a high risk strategy because exchange rates could move significantly in a short period of time. Forward contracts A forward exchange contract (or forward contract) is a binding obligation to buy or sell a certain amount of foreign currency at a pre-agreed rate of exchange, on a certain future date. To take out a forward contract you need to advise us of the amount, the two currencies involved, the expiry date and whether you would like to buy or sell the currency. It can be possible to build in some flexibility to allow the purchase or sale of the currency between two pre-defined dates rather than a single maturity date.

b. Foreign currency derivatives

Currency derivative is defined as s financial as a financial contract in order to swap two currencies at a predestined rate. It can also be termed as the agreement where the value can be determined from the rate of exchange of two currencies at the spot. The currency derivative trades in markets correspond to the spot (cash) market. Hence, the spot market exposures can be enclosed with the currency derivatives. The main advantage from derivative hedging is the basket of currency available. Some of the risks associated with currency derivatives are: Credit risk takes place, arising from the parties involved in a contract. Market risk occurs due to adverse moves in the overall market. Liquidity risks occur due to the requirement of available counterparties to take the other side of the trade. Settlement risks similar to the credit risks occur when the parties involved in the contract fail to provide the currency at the agreed time.

Q6. Discuss the importance of transfer pricing for MNCs.

Ans - Transfer pricing is the process of setting a price that will be charged by a subsidiary (unit) of a multi-unit firm to another unit for goods and services, which are sold between such related units. Transfer pricing is a critical issue for a firm operating internationally. Transfer pricing is determined in three ways: market based pricing, transfer at cost and cost-plus pricing. The Arms Length pricing rule is used to establish the price to be charged to the subsidiary. Transfer pricing can also be defined as the rates or prices that are utilized when selling goods or services between a parent company divisions and departments that may be across many countries. The price that is set for the exchange in the process of transfer pricing may be a rate that is reduced due to internal depreciation or the original purchase price of the goods in question. When properly used, transfer pricing helps to efficiently manage the ratio of profit and loss within the company. Transfer pricing is a relatively simple method of moving goods and services among the overall corporate family. Many managers consider transfer pricing as non-market based. The reason for transfer pricing may be internal or external. Internal transfer pricing include motivating managers and monitoring performance. External factors include taxes, tariffs, and other charges. Transfer Pricing Manipulation (TPM) is used to overcome these reasons. Governments usually discourage TPM since it is against transfer pricing, where transfer pricing is the act of pricing commodity or services. However, in common terminology, transfer pricing generally refers TPM. TPM assists in saving the organizations tax by shifting accounting profits from high tax to low tax jurisdictions. It also enables to fix transfer price on a non-market basis and thus enables to save tax. This method facilitates in moving the tax revenues of one country to another. A similar trend can be observed in domestic markets where different states try to attract investment by reducing the Sales tax rate, and this leads in an outflow from one state to another. Therefore, the Government is trying to implement a taxing system in order to curb tax evasion.

Spring 2012 Master of Business Administration - Semester 4 MB0053: International Business Management (Book ID: B1315) ASSIGNMENT- Set 2

Q1. Write a note on strategic objectives.

Ans: Strategic objectives Strategic objectives assist in the implementation process of the organisations objectives or goals. While implementing an international strategy, an organisation has to identify the opportunities present in these countries, explore the various resources available, their strengths and capabilities and plan to work on their core competencies. The objective should be formed in a way that it is not deficient or immeasurable. The strategic objectives must help the organisation to achieve their mission and vision. Most of strategic objectives focus on producing greater profits and returns for the business owners; others focus on customers or society at large. The strategic objectives are as follows: 1. Measurable To measure progress against fulfilling the objective there must be at least one indicator. 2. Specific A clear message as to what needs to be achieved is provided. 3. Appropriate With the given vision and mission of the organisation, objectives must be consistent. 4. Realistic Objectives must be an achievable target given the organisations abilities and opportunities in the environment. This means that objectives must be challenging and attainable. 5. Timely To accomplish the objective there need to be a time frame.

When strategic objectives are thoroughly implemented, it will result in strategic competitiveness that improves the performance and innovation of these organisations. When

objectives fulfil the above conditions, there are many profits for the organisation. The profits are: 1. First, they help guide employees throughout the organisation towards achieving the common goals. This aids the organisation to concentrate and conserve valuable resources and to work together in a timely manner. 2. Second, challenging objectives help encourage and inspire employees throughout the organisation to higher levels of commitment and effort. A research has supported the concept that individuals work harder when 3. they are motivated toward specific goals, instead of being asked simply to do their best. 4. Third, for different parts of an organisation there is always the potential to follow their own goals rather than the overall company goals. Though these intentions are good, these may work at cross purposes to the organisation as a whole. Thus, meaningful objectives help resolve divergence when they occur. 5. Finally, appropriate objectives offer a standard for rewards and incentives. They not only result in higher levels of motivation by employees but they will also help ensure a greater sense of equity or fairness when rewards are allocated. There are other objectives that are even more specific. These are commonly referred to as short-term objectives that are essential components of action plans. They are critical in implementing an organisations chosen strategy.

Q2. Discuss in brief the role of WTO in promoting international business.

Ans: WTO was established on 1st January 1995. In April 1994, the Final Act was signed at a meeting in Marrakesh, Morocco. The Marrakesh Declaration of 15th April 1994 was formed to strengthen the world economy that would lead to better investment, trade, income growth and employment throughout the world. The WTO is the successor to the General Agreement of Tariffs and Trade (GATT). India is one of the founder members of WTO. WTO represents the latest attempts to create an organisational focal point for liberal trade management and to consolidate a global organisational structure to govern world affairs. WTO has attempted to create various organisational attentions for regulation of international trade. WTO created a
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qualitative change in international trade. It is the only international body that deals with the rules of trades between nations. 1. Objectives and functions The key objective of WTO is to promote and ensure international trade in developing countries. The other major functions include: a. Helping trade flows by encouraging nations to adopt discriminatory trade policies. b. Promoting employment, expanding productions and trade and raising standard of living and income and utilising the worlds resources. c. Ensuring that developing countries secure a better share of growth in world trade. d. Providing forum for trade negotiations. e. Resolving trade disputes. The important functions of the WTO as stated in the WTO agreement are the following: Developing transitional economies Majority of the WTO members belong to developing countries. The developing countries such as India, China, Mexico, Brazil and others have an important role in the organisation. The WTO helps in solving the problems of developing economies. The developing states are provided with trade and tariff data. This depends on the countrys individual export interest and their participation in WTO-bodies. The new members benefit hugely from these services. a. Providing help for export promotion The WTO provides specialised help for export promotion to its members. The export promotion is done through the International Trade Center established by the GATT in 1964. It is operated by the WTO and the United Nations. The center accepts requests from member countries, usually developing countries for support in formulating and implementing export promotion programmes. The center provides information on export market and marketing techniques. The center also provides assistance in establishing export promotion and marketing services. Through this WTO proves its commitment in the upliftment of the world economy. b. Cooperating in global economic policy-making The main function of the WTO is to cooperate in global economic policy-making. In the Marrakesh Ministerial Meeting in April 1994, a separate declaration was adopted to achieve this objective. The
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declaration specifies the responsibility of WTO as, to improve and maintain the cooperation with international organisations such as the World Bank, International Monetary Fund (IMF) that are involved in monetary and financial matters. WTO analyses the impact of liberalisation on the growth and development of national economies which is the important factor in the success of the economy. c. Monitoring implementation of the agreement The WTO administers sixty different agreements that have the statue of international legal documents. The membergovernments sign and confirm all WTO agreements on attainment. d. Providing forum for negotiations The WTO provides a permanent forum for negotiations among members. The negotiations can be on matters already in the WTO agreements or matters not addressed in the WTO law. e. Administrating dispute settlement The important function of WTO is the administration of the WTO dispute settlement system. It helps in settling multilateral trading dispute. A dispute arises when a member country adopts a trade policy and other fellow members consider it as a violation of WTO agreements. The Dispute Settlement Body (DSB) is responsible for the settlement of disputes. The dispute settlement system is prohibited from adding or deleting the rights and obligations provided in the WTO agreements. The WTO dispute settlement system helps to: 1. Preserve the rights and responsibilities of the members. 2. Clarify the current provisions of the agreements.

Q3. Write a note on various export promotion schemes by GOI.

Ans: Export promotion schemes are the incentive programs that are developed to attract more firms into exporting. It helps in identification of the product and market. This also helps in pre-shipment and post-shipment financing, training, payment guarantee schemes, trade fairs, trade visits, and foreign representation and so on. India being a developing economy, export promotion schemes are needed to give a boost for our economy. The needs of the export promotion scheme are explained as follows:
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As the economy of the country is progressing with the increase in terms of population, there is a need for more number of imports. We need to have surplus exports to pay our imports. 1. It is not wise to depend on the other external assistances for financing essential imports, rather exportable surplus needs to be created. 2. In any country, there are some capital goods, machinery and raw materials that cannot be produced for some more time and it has to be 3. imported from the other countries. In order to pay for such imports, the country needs to have sufficient funds so that the country has to promote for its exports. 4. The earning of the exports need to be raised to create the purchasing power in order to import the essential goods. 5. We need to explore the foreign markets in order to expand the capacities of the existing units and find market for the new units. 6. To tap our export potentials completely, we need to focus on our strengths like, price stability, low wages and the industrial bases to increase its exports. 7. The deficits of payments in Indian economy can be resolved through funds received through the foreign assistance. We need to create the repaying capacity with the help of exports. 8. The below figure shows the three main categories that are associated with the export promotion measures.

The export promotion measures are explained as follows: 1. Export production - For gearing up the production, we need to sharpen the competitive edge and upgrade the technology to get a better quality. 2. Liberalisation - The policies like the trade and industrial licensing are oriented towards exports.
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3. Supply of raw materials - There are some license free import goods such as the raw materials, intermediates, components, consumables, spares, part accessories and other items that are not regulated by negative list of imports. There are many export promotion schemes and Export Promotion Capital Goods (EPCG) is one of the export promotion schemes.

Export Promotion Capital Goods (EPCG) scheme This scheme allows import of the capital goods at the reduced rate of 15percent customs duty. The goods can be both new and second hand goods and to the Services sector. This scheme has even extended to the services sector. These are explained as follows: 1. Import of second hand capital goods The import of second hand goods that have the minimum residual life of five years are allowed free of licence but is subjected to actual user conditions. 2. Duty exemption scheme - This scheme aims at import of duty free goods. The goods that can be imported by this way include raw materials, components, consumables, accessories, computer software. They can be imported under various schemes. 3. Investment in plant and equipment - The investments beyond 75 lakhs is permitted for the small scale industrial sectors. 4. Processing zones for export - The establishment of the Export Processing Zones (EPZ), Export Oriented Units (EOU), Electronic Hardware Technology Parks (EHTP) and Software Technology Parks (STP) helps in facilitating the export production in non-traditional sectors. 5. Quality - The central government helps in modernising and upgrading the test houses and laboratories in order to bring the standards so that the certifications from such test houses are very well recognised within and outside the country.

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Q4. What do you understand by regional integration? List its types.

Ans: Regional integration can be defined as the unification of countries into a larger whole. Regional integration also reflects a countrys willingness to share or unify into a larger whole. The level of integration of a country with other countries is determined by what it shares and how it shares. Regional integration requires some compromise on the part of countries. It should aim to improve the general quality of life for the citizens of those countries. In recent years, we have seen more and more countries moving towards regional integration to strengthen their ties and relationship with other countries. This tendency towards integration was activated by the European Union (EU) market integration. This trend has influenced both developed and developing countries to form customs unions and Free Trade Areas (FTA). The World Trade Organisation (WTO) terms these agreements of integration as Regional Trade Agreements (RTA).

Types of Integration In the previous section an overview and the need for regional integration was covered. A whole range of regional integrations exist today. Different types of regional integration are discussed in this section.

1. Preferential trading agreement Preferential trading agreement is a trade pact between countries. It is the weakest type of economic integration and aims to reduce the taxes on few products to the countries who sign the pact. The tariffs are not abolished completely but are lower than the tariffs charged to countries not party to the agreement. India is in PTA with countries like Afghanistan, Chile and South Common Market (MERCOSUR). The introduction of PTA has generated an increase in the market size, and resulted in the availability and variety of new products.

2. Free trade area Free Trade Area (FTA) is a type of trade bloc and can be considered as a second stage of economic integration. It is made up of all the countries that are willing to or agree to reduce preferences, tariffs and quotas on most of the services and goods traded between them. Countries choose this kind of economic integration if their economical structures are similar. If the countries compete among themselves, they are likely to choose customs union. The
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importers must obtain product information from all the suppliers within the supply chain, in order to determine the eligibility for a Free Trade Agreement (FTA). After receiving the supplier documentation, the importer must evaluate the eligibility of the product depending on the rules surrounding the products. The importers product is qualified individually by the FTA. The basis on which the product will be qualified is that the finished product should have a minimum percentage of local content.

3. Common market Common market is a group formed by countries within a geographical area to promote duty free trade and free movement of labour and capital among its members. European community is an example of common market. Common markets levy common external tariff on imports from non-member countries. A single market is a type of trade bloc, comprising a free trade area with common policies on product regulation, and freedom of movement of goods, capital, labour and services, which are known as the four factors of production. This agreement aims at making the movement of four factors of production between the member countries easier. The technical, fiscal and physical barriers among the member countries are eliminated considerably as these barriers hinder the freedom of movement of the four factors of production. The member countries must come forward to eliminate the barriers, have a political will and formulate common economic policies. A common market is a first step towards a single market. It may be initially limited to a FTA with moderate free movement of capital and services, but it is not capable of removing rest of the trade barriers.

Benefits and costs A single market has many advantages. The freedom of movement of goods, capital, labour and services between the member countries, results in the efficient allocation of these production factors and increases productivity. A single market presents a challenging environment for businesses as well as for customers, making the existence of monopolies difficult. This affects the inefficient companies and hence, results in a loss of market share and the companies may have to close down. However, efficient companies can gain from the increased competitiveness, economies of
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scale and lower costs. Single market also benefits the consumers in a way that the competitive environment provides them with inexpensive products, more efficient providers of products and increased variety of products. A country changing over to a single market may experience some short term negative effects on the national economy due to increased international competition. The national companies that earlier benefited from market protection and subsidies, may find it difficult to cope with their efficient peers. If the companies fail to improve their methods, they may have to close down leading to migration and unemployment.

4. Economic union Economic union is a type of trade bloc and is instituted through a trade pact. It comprises of a common market with a customs union. The countries that are part of an economic union have common policies on the freedom of movement of four factors of production, common product regulations and a common external trade policy. The purpose of an economic union is to promote closer cultural and political ties, while increasing the economic efficiency between the member countries. Economic unions are established by means of a formal intergovernmental legal agreement, among independent countries with the intention of fostering greater economic integration. The members of an economic union share some elements associated with their national economic jurisdictions. These include the free movements of: 1. Goods and services within the union along with a common taxing method for imports from non-member countries. 2. Capital within the economic union. 3. Persons within the economic union. Some form of cooperation usually exists when framing fiscal and monetary policies.

5. Political union A political union is a type of country, which consists of smaller countries/nations. Here, the individual nations share a common government and the union is acknowledged internationally as a single political entity. A political union can also be termed as a legislative union or state union.
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Q5. What are the challenges faced by Indian businesses in global market?
Ans: Challenges for Indian Businesses India is a developing country and every developing country has its own organisational problems. In the past decade, some Indian companies have made remarkable progress by reaching the international platform in short time. India has transformed from being primarily domestic players into confident global corporations. The TATA Jaguar deal was one prominent example of an Indian global power house to acquire an internationally reputed automotive company

1. Brand India Brand India is a phrase that describes the campaign which projects India as an emerging destination for business in various fields such as information technology, manufacturing, infrastructure, service sector and so on. Country names can amount to brand names and assist consumers in evaluating the products before purchasing them. Brand India is receiving a positive response. However, Brand India is weak in many ways. In developed countries, people are yet to associate India with world-class standards. The initial market entry strategy of a company from a developing country is to offer cheaper products of acceptable quality, example, China and Korea. The customers of developed countries buy those products only on the basis of price. Brand India is comprised of a large number of sub-brands that are relatively established. It reflects the economic reforms and liberalisation process that Indian economy has undergone. The famous brands from India are Indian information technology (IT) companies such as Infosys, Wipro and Tata. The positive image of these companies help in changing consumer perceptions and also help in re-branding India as a leading manufacturing and service hub by improving Indias brand equity. Brand equity is the worth derived from the goodwill and name recognition acquired over a period of time. It improves sales volume and profit margins. The India Brand Equity Foundation (IBEF) was established to promote brand India.

2. Government and bureaucracy The political environment of a country influences the business to a large extent. The political environment includes political stability in the country, nature and extent of bureaucracy, ideology of government, party in power and so on. Another challenge that influences
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business is bureaucracy. Industrial incentives are administered by an elaborate and expensive bureaucracy. The relationship of government to international business is based on the concept of sovereignty. The concept identifies that the nation has complete control over the international affairs. The infrastructure such as airport, road or port upgradation takes years for completion or are stalled for many years. This affects the business in India negatively. Government policy and procedures in India are very complex and confusing. Government policy and bureaucratic culture in India do not encourage international business. Unnecessary government interference can hinder globalisation. Government support is essential to encourage globalisation. Government support is extended in the form of policy reforms, development of infrastructure, financial market, R&D support and so on. Changes in government and political instability disrupt business. Good business thrives on predictability which is lacking in India.

3. Corporate governance Corporate governance is a process of promoting corporate transparency and accountability. It is set of policies that affect the way a company is administered and controlled. Quality corporate governance is a tool for socio-economic development. Corporate governance deals with power and accountability for the safety of assets and resources entrusted to the operating team of the firm. The objective of the corporate governance is to attain highest standards of procedures and practices that are followed by the corporate world. The new emerging corporate India needs guiding principles for corporate governance. The common aspects for the failure of corporate governance are misuse of power, frauds, misappropriation of funds and so on. Good corporate governance promotes accountability in relation to public satisfaction and responsive delivery of service. In India, corporate governance initiatives are undertaken by Ministry of Corporate Affairs (MCA) and the Securities and Exchange Board of India (SEBI).

Ethics Corporate governance is about ethical conduct of the business. Ethics is related to the code of values and principles that helps a person to choose between right or wrong. Managers make decisions based on a set of values and principles that are influenced by the culture of
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the organisation. Ethical leadership is important for the business to be conducted by meeting the expectations of all the stakeholders. Corporate governance is the ethical framework under which corporate decisions are taken. Ethics is a generalised value system avoiding discrimination in recruitment and adopting fair business practices. Business ethics provide a general guidelines within which a management can operate. An organisation has to be ethical because it has to exist in the competitive world. The varying ethical norms and social values make international business environment complex. The ethical norms vary from country to country.

Labour practices Ethical concerns are at the core of dispute regarding the labour practices. The multinational enterprises are charged of unjust treatment of workers in developing nations. The labour law enforcement is weak. The laws that force firms to obtain permission from the government prior to retrenchment are not enforced properly. Hiring labors to contractor and subcontracting non-core activities to other companies provides flexibility to the firms that seek to manage their labour force in volatile context. Child labour is used in the manufacture of exports from the developing countries is criticised by people in the developed countries. For example, in India the carpet industry uses child labour and social activists in developed nations demand ban on the import goods embodying child labour. Consumers tend to boycott such goods and this in turn adversely affects the business.

4. Managing diversity Most of the international businesses face problems in managing multicultural diversity. Previously, MNCs had a country specific business strategy but now it is moving towards a global one. Managing diversity is a process of establishing workforce to perform in an unbiased environment where no member has an advantage or disadvantage. For an international manager, managing diversity is a challenge. The challenge is to create a work environment where every person performs to his full potential and compete for rewards and promotions that based on merits. The success of an MNC is determined by its ability to manage diversity. In an international organisation, the workforce consists of variety of cultures. Today, a typical firm is a combination of diverse workforce in terms of gender, race and so on. Most companies encourage exchange programs where employees from one
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country come and interact with employees of other countries. There are some practical steps taken by managers to manage diversity. They are: 1. Focusing on bringing in best talent. 2. Establishing programmes among employees of same and different race. 3. Developing an age, gender and race profile of the workforce. 4. Promoting minorities and other sections to decision-making positions. 5. Providing extended leaves, flexible time, and job sharing opportunities.

Q6. Discuss the various e- business models.

Ans. E-Business Models In the previous section, you have studied about the e-business strategy. In this section let us learn about the e-business models. The business model describes the manner in which an organisation creates, delivers and captures the value. The values can be social, economic forms of value. The design of the business model is part of the business strategy. 1. Business to business model The business to business (B2B) model describes the transactions between the buyers, suppliers, manufactures, resellers, distributors, and trading partners. This involves the transactions that involve the products, services, and the information. Internet based ebusiness is carried out through the industry sponsored marketplaces and private exchanges that are conducted by the large companies. The B2B model is shown in the figure.

The above diagram indicates direct business to business model. In this direct business, the selling enterprise includes wholesaler, retailer or manufacturers who sell to the buyers of other business. The main reason behind introducing this B2B model is to overcome the problems met by industry sponsored marketplaces in approaching buyers and sellers. Most of the companies do not want to get customised designs through marketplaces as they do not want to expose proprietary information on a site that is shared by competitors. Therefore, companies use
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such marketplaces mainly to purchase products, manage their supply chains, and conduct indirect procurement transactions, as these are not related to their core business. B2B e-commerce differs from business-to-consumer e-commerce in many ways. Business to consumer merchants sells on a first-come, first-serve basis. Most B2B transactions are done through negotiated contracts that allow the seller to think and plan for how much the buyer is likely to purchase. In most of the cases, B2B model mainly focus on maintaining relationship with the business partners. We will now discuss about business to customer model.

2. Business to consumer model The activities that serve the business customers with the products and services are described in the business to consumer model. The best example we can give for the business to consumer (B2C) transaction is the person buying a pair of shoes from the retailer. The manufacture of the shoes performs many transactions such as the purchase of leather, laces, rubber and other raw materials. There are two models of implementation related to the business to consumer. They are described as follows:

a. Generic B2C model - The generic model is mainly designed for the small and medium enterprises. The third party e-market place is used to help the enterprises for selling the products online. b. Dedicated B2C model - Many of the large enterprises use the dedicated B2C model. The enterprise itself owns the e-market place to sell service and support the customers online. As the name indicates this model is fully dedicated to the customers and is almost equivalent to the customer relationship management.

c. There are some e-commerce constituents with the B2C model. These constituents are explained as follows: d. Commerce - This involves the process like the catalog, compare, products and a service, advertisements, order status and also enables the online payment.

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e. Personalisation - This involves the activities like profile matching that matches the web content to specific profiles and gets the feedback from the customers and deals with the events, calendaring, and registration. f. Community services - These include the services that are dealt for the whole community. The community services can be chat, message boards, e-mail services, subscriptions, and newsletters. g. Customer services - This process involves the services that are helpful for the customers. These include the activities such as the product support, online support like the call centers and telephony integration. h. The products that are browsed and mostly sold over the internet are explained as follows:

i. Computer hardware and software - Most of the people buy software products online. The major online retailers of computer hardware and software are Dell and Gateway. j. Consumer electronics - The second largest product category sold online is electronics. Some of the electronics items shopped or purchased online are digital cameras, printers, scanners, and wireless devices like mobile phones, pen drives and so on. For example, www.ebay.com k. Sporting goods - Sports related items like cricket bats, tennis bats, golf accessories like clubs, golf balls are some of the sporting goods which are sold online. Examples for this include sites like www. summitonline.com, www.dicksportinggoods.com and so on. l. Office supplies - Business to consumer sales of office supplies are increasing all over the world. For example, www.officedepot.com alone reached over 10,000 crores in 2002.

3. Consumer to consumer model The consumer to consumer (C2C) model involves the transaction between the customers through the third party. This can be explained by taking the example of online auction where the customer posts an item for sale and other customer purchases the product. But in between the third party charges a commission for the sale. C2C is also called as Peer to Peer (P2P) exchanges. The C2C transaction includes the classifieds, music and file sharing, and also the personal services. There will be million consumers those who want to sell their
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products in the e-business field. Equally on the other side there are million people who want to purchase the products and services. Finding each other are beneficial for both the retailer and the consumers and this can happen many times only with the help of third party that act as the intermediaries. The intermediaries in the C2Cbusiness model charge the sellers. The intermediaries charge because they bring the customers and sellers to one marketplace. C2C e-business has created a new dimension in online shopping business. C2C e-business gives many small business owners a way to sell their products without running a highly profit draining bricks-and-mortar store. The efficient C2C businesses involve items like handmade gifts, personal artwork, clothing design, and collectables.

4. Consumer to business model A consumer to business (C2B) model is the electronic business model, in which the consumers offer products and services to the enterprises. This is called as the inverted business model since the process operates completely in the opposite direction of the traditional e-business model, in which the organisations offer the goods and services to the consumers. The C2B model involves consumers themselves presenting as a group and provides the goods and services to the enterprise. For example, www.speakout.com. This site provides consumers market strategies and businesses and it also makes them familiar with the requirements of the various businesses. A concrete example of this is when competing airlines gives a traveler best travel and ticket offers in response to the travelers post. This C2B model is advantageous because of the following reasons. The model helps: In connecting large group of people by the bidirectional network. Many of the traditional media is of unidirectional but the internet is the bidirectional media. Individuals to access the technologies that were once available only for the large companies.

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