Description
MB0053
MB0053 –International Business Management
MBA Semester 4
Q1. The world economy is globalizing at an accelerating pace. What do you mean by globalization? Discuss the merits and demerits of Globalization
1. Globalisation:Globalisation is a process where businesses are dealt in markets around the world, apart from the local and national markets. Companies, which invest in other countries for business and also operate from other countries, are considered as global companies. They have multiple manufacturing plants across the globe, catering to multiple markets. Globalisation is defined as “ the worldwide trend of businesses expending beyond their domestic boundaries”. The term globalization has been in increasing use since the mid-1980s and especially since the mid-1990s.[6] In 2000, the International Monetary Fund (IMF) identified four basic aspects of globalization: trade and transactions, capital and investment movements, migration and movement of people and the dissemination of knowledge. Merits of globalisation:? Promote foreign trade and liberalisation of economies. ? Increases the living standards of people in several developing countries through capital investment in the 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 productivity. ? Promotes better education and jobs. ? Provides better quality of products, customer service, and standardised delivery models across countries. ? Gives better across to finance for corporate and sovereign borrowers. ? Increases business travel, which in turn leads to a flourishing travel and hospitality industry across the world. ? Provides several platforms for international dispute resolution in business, which facilitates international trade. Demerits of globalisation:Leads to exploitation of labour in several cases. Causes unemployment in the developed countries due to outsourcing. Leads to the misuse of Intellectual Property Right (IPR), copyright and so on due to the easy availability of technology, digital communication, travel and so on. Influences political decisions in foreign countries. The MNCs increasingly use their economical powers to influence political decisions. Causes ecological damage as the companies set up polluting production plants in the countries with limited or no regulations on pollution. Harms the local businesses of a country due to dumping of cheaper foreign goods. Causes destruction of ethnicity and culture of several regions worldwide in favour of more accepted western culture.
? ? ? ? ? ? ?
In spite of its disadvantages, globalisation has improved our lives through various fields like communication, transportation, healthcare and education.
Q2. The international trade theories explain the basics behind international trade. Compare the Absolute and comparative cost advantage theories with the help of example.
Absolute cost advantage theory:In one of the most notable book ‘Wealth of Nation’ in 1776 Adam Smith attacked the mercantilism and argued that countries differ in their ability to produce goods and service efficiently due to variety of reasons. Adam Smith argued that countries should specialise in production and manufacturing of goods and services in which they have an absolute advantage. Such cost of effective and efficient product can be traded with goods from other countries in which that country has an absolute advantage. According to Smith, England should specialise in the production of textiles and France should specialise in the production of wine. Both countries should exchange such product of absolute advantage with each other, England should sell textiles to France and France should sell wine to England. The crux of Smith’s absolute advantage theory is that a country should not produce goods at home in which it does not have cost advantage; instead it should import from other countries. Absolute advantage theory was based on ‘Positive sum games’ where countries benefit from trade unlike mercantilism theory which was based on ‘Zero game’.
Comparative advantage theory
avid Ricardo, in the notable book ‘Principal of political Economy’ published in 1817 came up with a improvement on Adam Smith’s absolute advantage theory. Ricardo argued what happen if one country has an absolute advantage in the production of all goods. He argued that it was not the case and showed that countries should trade goods with each other where they have comparative cost advantage. For a sustainable economic system , Ricardo argued that a country should specialise in the production of those goods that it can produce most efficiently and import the goods which it produce less efficiently even if it has absolute cost advantage in the production of those goods.
Comparative cost advantage: A Practical case of England and France
Portugal England Opportunity cost and efficiency portugal England
Cost comparison Labour cost of production (in hours) 1 unit of wine 1 unit of cloth 70 80 110 90
wine 70/80=7/8=0.87 110/90=11/9=1.22
cloth 80/70=8/7=1.14 90/110=9/11=0.81
According to this , 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. The oc for goods X is the amount of other goods that have to be given up in order to produce one additional unit of X.
Q3. Culture is more often a source of conflict than synergy. As an Indian manager, what management style and corporate culture you should be aware of while travelling to Japan and to USA?
Corporate culture of Japan
Country
Japan
Basis of approach to corporate culture Relationship must come before business
Business structure Hierarchically structured, based on harmony and co-operation, with individual aware of their position within a group.
Management style Information flows from the bottom of the company to the top. Implementation of decisions has been actively involved in the modelling of policy. Individual personality is not seen as the requisite for effective leadership.
Team work
Consensusbuilding process is used to define an agreement before a formal meeting to avoid any conflict .people are expected be modest and selfpromotion is not encouraged.
Corporate culture of USA
country
Basis of approach Business to corporate structure culture Every aspect of commercial life is studied and analysed. The company is an entity in its own right and survives independently from its workers. Senior management is more rooted in the personality at the top. Americans like to know where exactly they are, what are their responsibility and to whom they
Management style Management style is individualistic in approach; managers are responsible for the decisions made within their regions of responsibility. Important decisions are discussed in open environment and the responsibility for the concerns of the decision
Team work
USA
Groups of individuals are brought together to complete a given task. During that period the group is together, everybody is committed to the common goals, and work with dedication to assure that the goals are accomplished. Teams are assumed to be
report.
lies with managers.
the temporary nature.
in
Q4. Regional integration is the bonding between nations and states through political, cultural and economic cooperation. A whole range of regional integration exists today. Discuss these 6 types in brief. Answer: Regional integration is defined as the amalgamation of the different countries to form a large association representing them at global level. Example of regional integration is European Union, which actuated the trend of integration. Some common reasons for regional integration are trade growth facilitation, economic expansion encouragement, infrastructure development etc. There are 6 types of regional integration which are discussed below. 1. Preferential trading agreement: Aimed at reducing taxes on certain products, it is a trade pact between two countries. In this integration tariff is lower for the country with which pact is signed and this integration results in expansion of market size and availability of new products. Example India has PTA with Chile and Afghanistan. 2. Free trade area: It is second stage of regional integration where different countries which are willing to participate reduce the tariff and quotas on the traded goods and services. This integration is chosen if economic structure of the participating countries is similar. 3. Custom union: It is an agreement between two or more countries which have already entered in FTA and these countries have common external tariff for non-member countries imports. This type of integration helps member of trade creation, trade expansion and trade diversification. This is the third level of regional integration. 4. Common market: It is a group of countries within a geographical area to promote free movement of labour and capital among the members and duty free trade. The technical, physical and fiscal barriers are removed considerably among the member nations. European community is the prime example of the common market regional integration. 5. Economic union: It is the fifth stage of the economic integration and it is established through a trade pact. In other term it consists of common markets with a custom union. The provision of common currency, common policy, single trade policy and same tax rates all across the union are some of the striking features of the union. 6. Political union: It is the sixth stage of regional integration which represents the association of several small countries. The individual nations have a common government and are recognized as single political entity by the other nations
Q5. The decision of a firm to compete internationally will be strategic. While formulating global marketing strategies, how should a firm deal with segmentation, market positioning and international product policy? Ans5. The firm decision to compete internationally is purely strategic one. The firm develops global marketing strategies in order to deal with protectionism. The firm has to develop Different strategies like segmentation, market positioning, international product policy, international pricing decision, international advertising and international promotion.1. Segmentation: Segregation of the global market into several clusters based on their common characteristics is known as segmentation. Market segmentation can be of nine categories with behavioural, psychographic and
demographic segmentation being the most common form of market segmentation. After segmentation of the market, firms go for targeting which is defined as the process of selecting or choosing the potential market segment. The process of targeting is done based on three basic criteria namely potential competition, current market size and the growth rate of the market, compatibility and feasibility. For international firms under developed countries offer huge potential and tax benefit.2. Market Positioning: After segmentation the international firm should position its product in the global market. By product position we refer to a process of developing a positive image of the product with respect to the product of the competitor. In global markets product positioning is categorized as high tech or high touch positioning. The high tech products and high touch products are classified as special interest products, technical products and demonstration products. The global firm needs to achieve trade-off between domestic demand of the country and availing the advantage of the process of standardization like maintain the consistent global brand image of the products.3. International Product Policy: A product has different function to serve in different countries hence it is very important to find out the demand pattern and desire, motive sand expectation of the customer at domestic as well as international level. Firms can opt for customization of product in which the product is customized as per the requirements of the specific country or it can opt for standardization where same product is sold, with any substantial changes, domestically as well as internationally Q6. Global sourcing industry is on a growth run as there ar e sound business reasons to it. Discuss these reasons with examples. Ans6. Major reasons which encourage global sourcing are; 1. Lower salary and wages: The financial incentive of the outsourced operations to low labour cost nations like India and Poland forms the basic reason of the global outsourcing. The cost of labour in developed country is very high as compared to that in developing countries. 2. Regulatory cost in business: The cost associated with regulatory and legal framework in developing countries is just a fraction of what charged in developed nations like USA. Also cost of medical insurance, post-retirement benefits and other employee related expenses are to borne by employer, which in developed nation is very high, while in developing nation like India it may be borne by employee or the component may not even exist. Hence global outsourcing is preferred in business operations.
Tax breaks and benefits: For growth of their economy developing nations like India offers tax breaks and holidays for companies entering the market. For example tax break in Vatic given by state government to companies to aid them with setting up the manufacturing plant in that state. 4. Improved Performance: Developed nations outsource the routine and basic operations to developing nations which demands huge labour. Since labour cost in developing nation is very low the overall cost effectiveness of operation is achieved. Also these routine core operations find the job performance far better due to expertise of work gained in developing nation workforce. 5. Faster turnaround time: To focus resources on core activities of the business as well as achieving the reduced completion time and accuracy, developed nations outsource their on-core operations to the developing countries having lower cost for that operation. 6. Uncertainty over the business and political climate: To avoid political and business risks companies locate or outsource the business operations to different locations so that in case of any political imbalance in a particular region, the overall production rate can be maintained from other locations as well. Example auto parts manufacturing companies have their plants in India as well as Thailand to provide continuity of supply.
7. Proximity to the key markets: The companies have outsourced the business operationscloser to the key market. Example: India acts as a hub for Dell computers to cater theneeds of its consumers in the Asia Pacific region instead of supplying from Europe orUSA
doc_563224079.docx
MB0053
MB0053 –International Business Management
MBA Semester 4
Q1. The world economy is globalizing at an accelerating pace. What do you mean by globalization? Discuss the merits and demerits of Globalization
1. Globalisation:Globalisation is a process where businesses are dealt in markets around the world, apart from the local and national markets. Companies, which invest in other countries for business and also operate from other countries, are considered as global companies. They have multiple manufacturing plants across the globe, catering to multiple markets. Globalisation is defined as “ the worldwide trend of businesses expending beyond their domestic boundaries”. The term globalization has been in increasing use since the mid-1980s and especially since the mid-1990s.[6] In 2000, the International Monetary Fund (IMF) identified four basic aspects of globalization: trade and transactions, capital and investment movements, migration and movement of people and the dissemination of knowledge. Merits of globalisation:? Promote foreign trade and liberalisation of economies. ? Increases the living standards of people in several developing countries through capital investment in the 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 productivity. ? Promotes better education and jobs. ? Provides better quality of products, customer service, and standardised delivery models across countries. ? Gives better across to finance for corporate and sovereign borrowers. ? Increases business travel, which in turn leads to a flourishing travel and hospitality industry across the world. ? Provides several platforms for international dispute resolution in business, which facilitates international trade. Demerits of globalisation:Leads to exploitation of labour in several cases. Causes unemployment in the developed countries due to outsourcing. Leads to the misuse of Intellectual Property Right (IPR), copyright and so on due to the easy availability of technology, digital communication, travel and so on. Influences political decisions in foreign countries. The MNCs increasingly use their economical powers to influence political decisions. Causes ecological damage as the companies set up polluting production plants in the countries with limited or no regulations on pollution. Harms the local businesses of a country due to dumping of cheaper foreign goods. Causes destruction of ethnicity and culture of several regions worldwide in favour of more accepted western culture.
? ? ? ? ? ? ?
In spite of its disadvantages, globalisation has improved our lives through various fields like communication, transportation, healthcare and education.
Q2. The international trade theories explain the basics behind international trade. Compare the Absolute and comparative cost advantage theories with the help of example.
Absolute cost advantage theory:In one of the most notable book ‘Wealth of Nation’ in 1776 Adam Smith attacked the mercantilism and argued that countries differ in their ability to produce goods and service efficiently due to variety of reasons. Adam Smith argued that countries should specialise in production and manufacturing of goods and services in which they have an absolute advantage. Such cost of effective and efficient product can be traded with goods from other countries in which that country has an absolute advantage. According to Smith, England should specialise in the production of textiles and France should specialise in the production of wine. Both countries should exchange such product of absolute advantage with each other, England should sell textiles to France and France should sell wine to England. The crux of Smith’s absolute advantage theory is that a country should not produce goods at home in which it does not have cost advantage; instead it should import from other countries. Absolute advantage theory was based on ‘Positive sum games’ where countries benefit from trade unlike mercantilism theory which was based on ‘Zero game’.
Comparative advantage theory
avid Ricardo, in the notable book ‘Principal of political Economy’ published in 1817 came up with a improvement on Adam Smith’s absolute advantage theory. Ricardo argued what happen if one country has an absolute advantage in the production of all goods. He argued that it was not the case and showed that countries should trade goods with each other where they have comparative cost advantage. For a sustainable economic system , Ricardo argued that a country should specialise in the production of those goods that it can produce most efficiently and import the goods which it produce less efficiently even if it has absolute cost advantage in the production of those goods.Comparative cost advantage: A Practical case of England and France
Portugal England Opportunity cost and efficiency portugal England
Cost comparison Labour cost of production (in hours) 1 unit of wine 1 unit of cloth 70 80 110 90
wine 70/80=7/8=0.87 110/90=11/9=1.22
cloth 80/70=8/7=1.14 90/110=9/11=0.81
According to this , 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. The oc for goods X is the amount of other goods that have to be given up in order to produce one additional unit of X.
Q3. Culture is more often a source of conflict than synergy. As an Indian manager, what management style and corporate culture you should be aware of while travelling to Japan and to USA?
Corporate culture of Japan
Country
Japan
Basis of approach to corporate culture Relationship must come before business
Business structure Hierarchically structured, based on harmony and co-operation, with individual aware of their position within a group.
Management style Information flows from the bottom of the company to the top. Implementation of decisions has been actively involved in the modelling of policy. Individual personality is not seen as the requisite for effective leadership.
Team work
Consensusbuilding process is used to define an agreement before a formal meeting to avoid any conflict .people are expected be modest and selfpromotion is not encouraged.
Corporate culture of USA
country
Basis of approach Business to corporate structure culture Every aspect of commercial life is studied and analysed. The company is an entity in its own right and survives independently from its workers. Senior management is more rooted in the personality at the top. Americans like to know where exactly they are, what are their responsibility and to whom they
Management style Management style is individualistic in approach; managers are responsible for the decisions made within their regions of responsibility. Important decisions are discussed in open environment and the responsibility for the concerns of the decision
Team work
USA
Groups of individuals are brought together to complete a given task. During that period the group is together, everybody is committed to the common goals, and work with dedication to assure that the goals are accomplished. Teams are assumed to be
report.
lies with managers.
the temporary nature.
in
Q4. Regional integration is the bonding between nations and states through political, cultural and economic cooperation. A whole range of regional integration exists today. Discuss these 6 types in brief. Answer: Regional integration is defined as the amalgamation of the different countries to form a large association representing them at global level. Example of regional integration is European Union, which actuated the trend of integration. Some common reasons for regional integration are trade growth facilitation, economic expansion encouragement, infrastructure development etc. There are 6 types of regional integration which are discussed below. 1. Preferential trading agreement: Aimed at reducing taxes on certain products, it is a trade pact between two countries. In this integration tariff is lower for the country with which pact is signed and this integration results in expansion of market size and availability of new products. Example India has PTA with Chile and Afghanistan. 2. Free trade area: It is second stage of regional integration where different countries which are willing to participate reduce the tariff and quotas on the traded goods and services. This integration is chosen if economic structure of the participating countries is similar. 3. Custom union: It is an agreement between two or more countries which have already entered in FTA and these countries have common external tariff for non-member countries imports. This type of integration helps member of trade creation, trade expansion and trade diversification. This is the third level of regional integration. 4. Common market: It is a group of countries within a geographical area to promote free movement of labour and capital among the members and duty free trade. The technical, physical and fiscal barriers are removed considerably among the member nations. European community is the prime example of the common market regional integration. 5. Economic union: It is the fifth stage of the economic integration and it is established through a trade pact. In other term it consists of common markets with a custom union. The provision of common currency, common policy, single trade policy and same tax rates all across the union are some of the striking features of the union. 6. Political union: It is the sixth stage of regional integration which represents the association of several small countries. The individual nations have a common government and are recognized as single political entity by the other nations
Q5. The decision of a firm to compete internationally will be strategic. While formulating global marketing strategies, how should a firm deal with segmentation, market positioning and international product policy? Ans5. The firm decision to compete internationally is purely strategic one. The firm develops global marketing strategies in order to deal with protectionism. The firm has to develop Different strategies like segmentation, market positioning, international product policy, international pricing decision, international advertising and international promotion.1. Segmentation: Segregation of the global market into several clusters based on their common characteristics is known as segmentation. Market segmentation can be of nine categories with behavioural, psychographic and
demographic segmentation being the most common form of market segmentation. After segmentation of the market, firms go for targeting which is defined as the process of selecting or choosing the potential market segment. The process of targeting is done based on three basic criteria namely potential competition, current market size and the growth rate of the market, compatibility and feasibility. For international firms under developed countries offer huge potential and tax benefit.2. Market Positioning: After segmentation the international firm should position its product in the global market. By product position we refer to a process of developing a positive image of the product with respect to the product of the competitor. In global markets product positioning is categorized as high tech or high touch positioning. The high tech products and high touch products are classified as special interest products, technical products and demonstration products. The global firm needs to achieve trade-off between domestic demand of the country and availing the advantage of the process of standardization like maintain the consistent global brand image of the products.3. International Product Policy: A product has different function to serve in different countries hence it is very important to find out the demand pattern and desire, motive sand expectation of the customer at domestic as well as international level. Firms can opt for customization of product in which the product is customized as per the requirements of the specific country or it can opt for standardization where same product is sold, with any substantial changes, domestically as well as internationally Q6. Global sourcing industry is on a growth run as there ar e sound business reasons to it. Discuss these reasons with examples. Ans6. Major reasons which encourage global sourcing are; 1. Lower salary and wages: The financial incentive of the outsourced operations to low labour cost nations like India and Poland forms the basic reason of the global outsourcing. The cost of labour in developed country is very high as compared to that in developing countries. 2. Regulatory cost in business: The cost associated with regulatory and legal framework in developing countries is just a fraction of what charged in developed nations like USA. Also cost of medical insurance, post-retirement benefits and other employee related expenses are to borne by employer, which in developed nation is very high, while in developing nation like India it may be borne by employee or the component may not even exist. Hence global outsourcing is preferred in business operations.
Tax breaks and benefits: For growth of their economy developing nations like India offers tax breaks and holidays for companies entering the market. For example tax break in Vatic given by state government to companies to aid them with setting up the manufacturing plant in that state. 4. Improved Performance: Developed nations outsource the routine and basic operations to developing nations which demands huge labour. Since labour cost in developing nation is very low the overall cost effectiveness of operation is achieved. Also these routine core operations find the job performance far better due to expertise of work gained in developing nation workforce. 5. Faster turnaround time: To focus resources on core activities of the business as well as achieving the reduced completion time and accuracy, developed nations outsource their on-core operations to the developing countries having lower cost for that operation. 6. Uncertainty over the business and political climate: To avoid political and business risks companies locate or outsource the business operations to different locations so that in case of any political imbalance in a particular region, the overall production rate can be maintained from other locations as well. Example auto parts manufacturing companies have their plants in India as well as Thailand to provide continuity of supply.
7. Proximity to the key markets: The companies have outsourced the business operationscloser to the key market. Example: India acts as a hub for Dell computers to cater theneeds of its consumers in the Asia Pacific region instead of supplying from Europe orUSA
doc_563224079.docx