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August/Fall 2012 Master of Business Administration - MBA Semester IV MB0053 International Business Management - 4 Credits (Book ID: B1315)

Assignment Set- 1 (60 Marks) Note: Each question carries 10 Marks. Answer all the questions. Q.1 Write a short note on Globalization (10 Marks) Ans.:- The term "globalization" has acquired considerable emotive force. Some view it as aprocess that is beneficial a key to future world economic development and alsoinevitable and irreversible. Othe rs regard it with hostility, even fear, believing that iti n c r e a s e s i n e q u a l i t y w i t h i n a n d b e t w e e n n a t i o n s , t h r e a t e n s e m p l o y m e n t a n d l i v i n g standards and thwarts social progress. This brief offers an overview of some aspects of g l o b a l i z a t i o n a n d a i m s t o i d e n t i f y w a y s i n w h i c h c o u n t r i e s c a n t a p t h e g a i n s o f t h i s process, while remaining realistic about its potential and its risks.Globalization offers extensive opportunities for truly worldwide development but it is notprogressing evenly. Some countries are becoming integrated into the global econom ymore quickly than others. Countries that have been able to integrate are seeing faster growth and reduced poverty. Economic "globalization" is a historical process, the result of human innovation and technological progress. It refers to the increasing integration of economies around theworld, particularly through trade and financial flows. The term sometimes also refers tot h e m o v e m e n t o f p e o p l e ( l a b o r ) a n d k n o w l e d g e ( t e c h n o l o g y ) a c r o s s i n t e r n a t i o n a l borders. There are also broader cultural, political and environmental dimensions of globalization that are not covered here.At its most basic, there is nothing m ysterious about globalization. The term has come into common usage since the 1980s, reflecting technological advances that have madeit easier and quicker to complete international transactions both trade and financial flows. It refers to an extension beyond national borders of the same market forces thathave operated for centuries at all levels of human economic activity village markets,urban industries, or financial centers.Globalization is not just a recent phenomenon. Some analysts have argued that theworld economy was just as globalized 100 years ago as it is today. But today commerceand financial services are far more developed and deeply integrated than they were atthat time. The most striking aspect of this has been the integration of financial marketsmade possible by modern electronic communication.There are four aspects of globalization: 1.Trade: Developing countries as a whole have increased their share of world trade from 19 percent in 1971 to 29 percent in 1999. For instance, the newly industrializedeconomies (NIEs) of Asia have done well, while Africa as a whole has fared poorly.The composition of what countries export is also important. The strongest rise by far has been in the export of manufactured goods. The share of primary commodities inworld exports such as food and raw materials that are often produced by the poorest countries, has declined. 2.Capital movements: G l o b a l i z a t i o n s h a r p l y i n c r e a s e d p r i v a t e c a p i t a l f l o w s t o developing countries during much of the 1990s. It also shows that: the increase followed a particularly "dry" period in the 1980s; net official flows of "aid" or develo pment assistance have fallen significantlysince the early 1980s; and t h e c o m p o s i t i o n o f p r i v a t e f l o w s h a s c h a n g e d d r a m a t i c a l l y . D i r e c t f o r e i g n invest ment has become the most important category. Both portfolio investmentand bank credit rose but they have been more volatile, falling sharply in the wake of the financial crises of the late 1990s. 3. Movement of people: W o r k e r s m o v e f r o m o n e c o u n t r y t o a n o t h e r p a r t l y t o f i n d better employment opportunities. The numbers involved are still quite small, but in the period 1965-90, the

proportion of labor forces round the world that was foreignb o r n i n c r e a s e d b y a b o u t o n e h a l f . M o s t m i g r a t i o n o c c u r s b e t w e e n d e v e l o p i n g countries. But the flow of migrants to advanced economies is likely to provide a means through which global wages converge. There is also the potential for skills tobe transferred back to the developing countries and for wages in those countries torise. 4. Spread of knowledge (and technology): Information exchange is an integral, often overlooked, aspect of globalization. For instance, direct foreign investment brings not only an expansion of the physical capital stock, but also technical innovation. More generally, knowledge about production methods, management techniques, export markets and economic policies is available at very low cost, and it represents a highly valuable resource for the developing countries

Q.2 Describe the positives of trade liberalization. (10 Marks) Policies that make an economy open to trade and investment with the rest of the world are needed for sustained economic growth. The evidence on this is clear. No country indecent decades has achieved economic success, in terms of substantial increases in living standards for its people, without being open to the rest of the world. In contrast, trade opening (along with opening to foreign direct investment) has been an important element in the economic success of East Asia. O p e n i n g u p t h e i r e c o n o m i e s t o t h e g l o b a l e c o n o m y h a s b e e n e s s e n t i a l i n e n a b l i n g many developing countries to develop competitive advantages in the manufacture of c e r t a i n p r o d u c t s . I n t h e s e c o u n t r i e s , d e f i n e d b y t h e W o r l d B a n k a s t h e " n e w globalizers," the number of people in absolute poverty declined by over 120 million (14percent) between 1993 and 1998.There is considerable evidence that more outward-oriented countries tend consistently to grow faster than ones that are inward-looking. Indeed, one finding is that the benefits of trade liberalization can exceed the costs by more than a factor of 10. Countries that have opened their economies in recent years, including India, Vietnam, and Uganda, have experienced faster growth and more poverty reduction. On average, those developing countries that lowered tariffs sharply in the 1980s grew more quickly in the1990s than those that did not. Freeing trade frequently benefits the poor especially. Developing countries can ill-afford the large implicit subsidies, often channeled to narrow privileged interests that trade protection provides. Moreover, the increased growth that results from free trade itself tends to increase the incomes of the poor in roughly the same proportion as those of the population as a whole. New jobs are created for unskilled workers, raising them into the middle class. Overall, inequality among countries has been on the decline since1990, reflecting more rapid economic growth in developing countries, in part the result of trade liberalization. Although there are benefits from improved access to other countries markets, countriesb e n e f i t m o s t f r o m l i b e r a l i z i n g t h e i r o w n m a r k e t s . T h e m a i n b e n e f i t s f o r i n d u s t r i a l countries would come from the liberalization of their agricultural markets. Developing countries would gain about equally from liberalization of manufacturing and agriculture.T h e g r o u p o f l o w income countries, however, would gain most from agriculturalliberalization in in d u s t r i a l c o u n t r i e s b e c a u s e o f t h e g r e a t e r r e l a t i v e i m p o r t a n c e o f agriculture in their economies. Further liberalization by both industrial and developing countries will be needed tor e a l i z e t r a d e s p o t e n t i a l a s a d r i v i n g f o r c e f o r e c o n o m i c g r o w t h a n d d e v e l o p m e n t . Greater efforts by industrial countries and the international community more broadly, arecalled for to remove the trade barriers facing developing countries, particularly thepoorest countries. Although quotas under the so-called Multi-fiber Agreement are due tube phased out by 2005, speedier liberalization of textiles and clothing and of agriculturei s p a r t i c u l a r l y i m p o r t a n t . S i m i l a r l y , t h e e l i m i n a t i o n o f t a r i f f p e a k s a n d e

s c a l a t i o n i n agriculture and manufacturing also needs to be pursued. In turn, developing countries w o u l d s t r e n g t h e n t h e i r o w n e c o n o m i e s ( a n d t h e i r t r a d i n g p a r t n e r s ) i f t h e y m a d e a sustained effort to reduce their own trade barriers further. Enhanced market access for the poorest developing countries would provide them with the means to harness trade for development and poverty reduction. Offering the poorest countries duty and quota free access to world markets would greatly benefit these countries at little cost to the rest of the world. The recent market-opening initiatives of the EU and some other countries are important steps in this regard. To be completelye f f e c t i v e , s u c h a c c e s s s h o u l d b e m a d e p e r m a n e n t , e x t e n d e d t o a l l g o o d s , a n d accompanied by simple, transparent rules of origin. This wou l d g i v e t h e p o o r e s t countries the confidence to persist with difficult domestic reforms and ensure effective use of debt relief and aid flows. Q.3 Write a short note on GATT and WTO, highlighting the difference between the two. (10 Marks) G e n e r a l A g r e e m e n t o n T a r i f f a n d T r a d e ( GATT) Ans. :- The GATT, was established on a provisional basis after the Second W orld W ar in thew a k e o f o t h e r n e w m u l t i l a t e r a l i n s t i t u t i o n s d e d i c a t e d t o i n t e r n a t i o n a l e c o n o m i c cooperation notably the "Britton W oods" institutions now known as the W orld Bankand the International Monetary Fund.The original 23 GATT countries were among over 50 which agreed a draft Charter for an International Trade Organization (ITO) a new specialized agenc y of the UnitedNations. The Charter was intended to provide not only world trade disciplines but alsocontained rules relating to employment, commodity agreements, restrictive business practices, international investment and services.In an effort to give an early boost to trade liberalization after the Second World War and to begin to correct the large overhang of protectionist measures which remained inplace from the early 1930s -tariff negotiations were opened among the 23 foundingGATT "contracting parties" in 1946. This first round of negotiations resulted in 45,000tariff concessions affecting $10 billion or about one-fifth of world trade. It was alsoagreed that the value of these concessions should be protected by early and largely"provisional" acceptance of some of the trade rules in the draft ITO Charter. The tarif f concessions and rules together became known as the General Agreement on Tariffs and Trade and entered into force in January 1948.A l t h o u g h t h e I T O C h a r t e r w a s f i n a l l y a g r e e d a t a U N C o n f e r e n c e o n T r a d e a n d Employment in Havana in March 1948, ratification in national legi s l a t u r e s p r o v e d impossible in some cases. W hen the United States government announced, in 1950,that it would not seek Congressional ratification of the Havana Charter, the ITO waseffectively dead. Despite its provisional nature, the GATT remained the only multilateralinstrument governing international trade from 1948 until the establishment of the WTO.Although, in its 47 years, the basic legal text of the GATT remained much as it was in1 9 4 8 , t h e r e w e r e a d d i t i o n s i n t h e f o r m o f " p l u r a l l a t e r a l v o l u n t a r y m e m b e r s h i p agreements and continual efforts to reduce tariffs. Much of this was achieved through aseries of "trade rounds".T h e b i g g e s t l e a p s f o r w a r d i n i n t e r n a t i o n a l t r a d e l i b e r a l i z a t i o n h a v e c o m e t h r o u g h multilateral trade negotiations, or "trade rounds", under the auspices of GATT theUruguay Round was the latest and most extensive.The limited achievement of the Tokyo Round, outside the tariff reduction results, was asign of difficult times to c ome. GATTs success in reducing tariffs to such a low level,combined with a series of economic recessions in the 1970s and early 1980s, drovegovernments to devise other forms of protection for sectors facing increased overseasc o m p e t i t i o n . H i g h r a t e s o f u n e m p l o y m e n t a n d c o n s t a n t f a c tory closures ledgovernments in Europe and North America to s e e k b i l a t e r a l m a r k e t - s h a r i n g arrangements with competitors and to embark on

a subsidies race to maintain their h o l d s o n a g r i c u l t u r a l t r a d e . B o t h t h e s e c h a n g e s u n d e r m i n e d t h e c r e d i b i l i t y a n d effectiveness of GATT. WTO W orld Trade Organization came into existence in 1995 after the desolation of GeneralAgreement on Tariff and Trade (GATT).T h e W T O s o v e r r i d i n g o b j e c t i v e i s t o h e l p t r a d e f l o w s m o o t h l y , f r e e l y , f a i r l y a n d predictably. It does this by: Administering trade agreements Acting as a forum for trade negotiations Settling trade disputes Reviewing national trade policies Assisting developing countries in trade policy issues, through technic a l assistance and training programs Cooperating with other international organizationsThe WTO has nearly 150 members, accounting for over 97% of world trade. Around 30others are negotiating membership. Decisions are made by the entire membership. Thisis typically by consensus. A majority vote is also possible but it has never been used inthe W TO, and was extremely rare under the W TOs predecessor, GATT. The W TOsagreements have been ratified in all members parliaments.The WTOs top level decision-making body is the Ministerial Conference which meetsat least once every two years. Below this is the General Council which meets severaltimes a year in the Geneva headquarters. The General Council also meets as the TradePolic y Review Body and the Dispute Settlement Body. At the n ext level, the GoodsCouncil, Services Council and Intellectual Property (TRIPS) Council report to theGeneral Council.Numerous specialized committees, working groups and working parties deal withthe individual agreements and other areas such as the environm ent, development,membership applications and regional trade agreements.T h e W T O S e c r e t a r i a t , b a s e d i n G e n e v a , h a s a r o u n d 6 0 0 s t a f f a n d i s h e a d e d b y a director-general. Its annual budget is roughly 160 million Swiss francs. It does not havebranch offices outside Geneva. Since decisions are taken by the members themselves,t h e S e c r e t a r i a t d o e s n o t h a v e t h e d e c i s i o n m a k i n g r o l e t h a t o t h e r i n t e r n a t i o n a l bureaucracies are given with.T h e W T O i s r u n b y i t s m e m b e r g o v e r n m e n t s . A l l m a j o r d e c i s i o n s a r e m a d e b y t h e membership as a whole, either by ministers (who meet at least once every two years) or b y t h e i r a m b a s s a d o r s o r d e l e g a t e s ( w h o m e e t r e g u l a r l y i n G e n e v a ) . D e c i s i o n s a r e normally taken by consensus. Difference between WTO and GATT:The W orld Trade Organization is no t a simple extension of GATT; on the contrary, itcompletely replaces its predecessor and has a very different character. Among the principal differences are the following:a . T h e G A T T w a s a s e t o f r u l e s , a m u l t i l a t e r a l a g r e e m e n t , w i t h n o i n s t i t u t i o n a l foundation, only a small associated secretariat which had its origins in the attempt to establish an International Trade Organization in the 1940s. The W TO is a permanent institution with its own secretariat.b.The GATT was applied on a "provisional basis" even if, after more than forty years,

governments chose to treat it as a permanent commitment. The W T O commitments are full and permanent.c.The GATT rules applied to trade in merchandise goods. In addition to goods, theWTO covers trade in services and trade-related aspects of intellectual property.d . W h i l e G A T T w a s a m u l t i l a t e r a l i n s t r u m e n t , b y t h e 1 9 8 0 s m a n y n e w a g r e e m e n t s had been added of a plural-lateral, and therefore selective, nature. The agreementsw h i c h c o n s t i t u t e t h e W T O a r e a l m o s t a l l m u l t i l a t e r a l a n d , t h u s , i n v o l v e commitments for the entire membership.e.The WTO dispute settlement system is faster, more automatic, and thus much lesssusceptible to blockages, than the old GATT system. The implementation of WTOdispute findings will also be more easily assured.

Q.4 Think of any MNC and analyze its business strategy orientation. (10 Marks) Ans.Multinational companies (MNC) may pursue business strategies that are Home country oriented or Host country oriented or World oriented .Perl mutter uses such terms as ethnocentric, polycentric and geocentric. However, ethnocentric" is misleading because it focuses on race or ethnicity, especially when the home country itself is populated by many different races, whereas "polycentric" loses its meaning when the MNCs operate only in one or two foreign countries. According to Franklin Root (1994), an MNC is a parent company thata.engages in foreign production through its affiliates located in several countries,b . e x e r c i s e s d i r e c t c o n t r o l o v e r t h e p o l i c i e s o f i t s a f f i l i a t e s , c.implements business strategies in production, marketing, finance and staffing thattranscend national boundaries. Business strategy of a MNC can be analyzed with the help of Three Stages of Evolution 1.Export stage initial inquiries - firms rely on export agents expansion of export sales f u r t h e r e x p a n s i o n f o r e i g n s a l e s b r a n c h o r a s s e m b l y o p e r a t i o n s ( t o s a v e transport cost) 2.Foreign Production Stage There is a limit to foreign sales (tariffs, NTBs).Once the firm chooses foreignpr oduction as a method o f d e l i v e r i n g g o o d s t o f o r e i g n m a r k e t s , i t m u s t d e c i d e whether to establish a foreign production subsidiar y or license the technology to a foreign firm.Licensing is usually first experience (because it is easy) it does not require any capital expenditure it is not risky payment = a fixed % of sales e.g.: Kentucky Fried Chicken in the U.K. Problem that may arise while following a particular business strategy: Them o t h e r f i r m m a y f i n d i t d i f f i c u l t i n e x e r c i s e o f a n y m a n a g e r i a l c o n t r o l o v e r t h e licensee (as it is independent).Secondly, the licensee may transfer industrial secrets to another independent firm,thereby creating a rival. The next stage for supplementing any particular business strategy i s Investments involved. It requires the decision of top management because it is a critical step. it is risky (lack of information) (for exampleU S f i r m s t e n d t o e s t a b l i s h subsidiaries in Canada first. Singer Manufacturing Comp any established itsforeign plants in Scotland and Australia in the 1850s) plants are established in several countries licensing is switched from independent producers to its subsidiaries. export continues 3.Multinational Stage:

The company becomes a multinational enterpr ise when itbegins to plan, organize and coordinate production, marketing, R&D, financing, andstaffing. For each of these operations, the firm must find the best location.This is how a MNC decides its business strategy orientation.

Q.5 What does FDI stand for? Why do MNCs opt for FDI to enter international market? (10 Marks)

Ans. FDI stands for Foreign Direct Investment. New MNCs do not pop up randomly in foreignnations. It is the result of conscious planning by corporate managers. Investment flowsf r o m r e g i o n s o f Low a n t i c i p a t e d p r o f i t s t o t h o s e o f high r e t u r n s . W h e n M N C incorporated in one country, invests in another country, it is said that the FDI has flowedinto the other country from some foreign origin.The main reasons for MNCs to opt for FDI to enter international market is stated as follows: 1.Growth motive : A company may have reached a plateau satisfying domesticdemand, which is not growing. Looking for new markets. 2.Protection in the importing countries : F o r e i g n d i r e c t i n v e s t m e n t i s o n e w a y t o expand. FDI is a means to bypassing protective instruments in the importing country.E u r o p e a n C o m m u n i t y i m p o s e d c o m m o n e x t e r n a l t a r i f f a g a i n s t o u t s i d e r s . UScompanies c i r c u m v e n t e d t h e s e b a r r i e r s b y s e t t i n g u p s u b s i d i a r i e s . J a p a n e s e corporations located auto assembly plants in the US, to bypass VERs. 3.High Transportation Costs : Transportation costs are like tariffs in that they areb a r r i e r s w h i c h r a i s e c o n s u m e r p r i c e s . W h e n t r a n s p o r t a t i o n c o s t s a r e h i g h , multinational firm s want to build production plants close to the market in order tosave transportation costs. Multinational firms that invested and built productionplants in the United States are better off than the exporting firms that utilized New Orleans port to ship and distribute products through New Orleans, provided that theybuilt plants in a safe area. 4.Exchange Rate Fluctuations: Japanese firms invest here to produce heavyconstruction machines to a v o i d e x c e s s i v e e x c h a n g e r a t e f l u c t u a t i o n s . A l s o , Japanese automobile f irms have plants to produce automobile parts. For instance, Toyota imports engines and transmissions from Japanese plants, and produce the rest in the U.S. 5.Market competition: T h e m o s t c e r t a i n m e t h o d o f p r e v e n t i n g a c t u a l o r p o t e n t i a l competition is to acquire foreign businesses. GM purchased Monarch (GM Canada)and Opel (GM Germany). It did not buy Toyota, Dotson (Nissan) and Volkswagen. They later became competitors. 6.Cost reduction: United Fruit has established banana-producing facilities in Honduras.Cheap foreign labour. Labour costs tend to differ among nations. MNCs can hold down costs by locating part of all their productive facilities abroad. (Maquildoras)

Q.6 Viewing culture as a multi-level construct, describe various levels it consists of. (10 Marks) Ans.There are two kinds of approach construct of culture. One is a Multi-level approach ,viewing culture as a multi-level construct that consists of various levels nested within each other from the most macro-level of a global culture, through national cultures, organizational cultures, group cultures, and cultural values that are represented in theself at the individual level. T h e s e c o n d i s b a s e d o n S c h e i n s ( 1 9 9 2 ) m o d e l v i e w i n g c u l t u r e as a m u l t i l a y e r construct

consisting of the most external layer of observed artifacts and behaviours, the deeper level of values, which is testable by social consensus, and the deepest levelof basic assumption, which is invisible and taken for granted.The present model proposes that culture as a multi layer construct exists at all levels from the global to the individual and that at each level change first occurs at themost external layer of behaviour, and then, when shared by individuals who belong tothe same cultural context, it becomes a shared value that characterizes the aggregatedunit (group, organizations, or nations).In the model, the most macro -level is that of a global culture being created by globalnetworks and global institutions that cross national and cultural borders. Figure-1: The dynamic of top-downbottom-up processes across levels of culture. Given the dominance of Western MNCs, the values that dominate the global context areo f t e n b a s e d o n a f r e e m a r k e t e c o n o m y , d e m o c r a c y , a c c e p t a n c e a n d t o l e r a n c e o f diversity, respect of freedom of choice, individual rights, and openness to change.Below the global level are nested organizations and networks at the national level withtheir local cultures varying from one nation or network to another. Further down are local organizations, and although all of them share some common values o f t h e i r national culture, they var y in their local organizational cultures, which are also shapedby the type of industr y that they represent, the type of ownership, the values of thef o u n d e r s , e t c . W i t h i n e a c h o r g a n i z a t i o n a r e s u b u n i t s a n d g r o u p s t h a t s h a r e t h e common national and organizational culture, but that differ from each other in their unitculture on the basis of the differences in their functions (e.g., R&D vs manufacturing),their leaders values, and the professional and educational level of their members. Atthe bottom of this structure are individuals who through the process of socializationacquire the cultural values transmitted to them from higher levels of culture. Individualswho belong to the same group share the same values that differentiate them from other groups and create a group level culture through a bottom-up process of aggregationof shared values. For example, employees of an R&D unit are selected into the unitbecause of their creative cognitive style and professional expertise. Their leader alsotypically facilitates the display of these personal characteristics because they are crucialfor developing innovative products. Thus, all members of this unit share similar core values, which differentiate them from other organizational units. Groups that share similar values create the organizational culture through a process of aggregation, and local organizations that share similar values create the national culture that is different from other national cultures. Both top-down and bottom-up processes reflect the dynamic nature of culture, andexplain how culture at different levels is being shaped and reshaped by changes that occur at other levels, either above it through top-down processes or below it through bottom-up processes. Similarly, changes at each level affect lower levels through a top-down process, and upper levels through a bottom-up process of aggregation. Global organizations and networks are being formed by having local-level organizations j o i n t h e g l o b a l a r e n a . T h a t m e a n s t h a t t h e r e i s a c o n t i n u o u s reciprocal process of shaping and reshaping organizations at both levels. For example, multinatio n a l companies that operate in the global market develop common rules and cultural values that enable them to create a synergy between the various regions, and different parts of t h e m u l t i n a t i o n a l c o m p a n y . T h e s e g l o b a l r u l e s a n d v a l u e s f i l t e r d o w n t o t h e l o c a l organizations that constitute the global company, and, over time, they shape the localo r g a n i z a t i o n s . R e c i p r o c a l l y , h a v i n g l o c a l o r g a n i z a t i o n s j o i n a g l o b a l c o m p a n y m a y introduce changes into the global company because of its need to function effectivelyacross different cultural boarders.

Master of Business Administration - MBA Semester IV MB0053 International Business Management - 4 Credits (Book ID: B1315) Assignment Set- 1 (60 Marks) Note: Each question carries 10 Marks. Answer all the questions. Q.1 Write a short note on Bill of Lading. (10 Marks) A Bill of Lading is a t ype of docum ent that is used to acknowledge the receipt o f a shipment of goods and is an essential document in transporting goods overland to the exporters international carrier. A through Bill of Lading involves the use of at least two different modes of transport from road, rail, air and sea. The term derives from the noun bill", a schedule of costs for services supplied or to be supplied, and from the verb "to lade" which means to load a cargo onto a ship or other form of transport. I n a d d i t i o n t o a c k n o w l e d g i n g t h e r e c e i p t o f g o o d s , a B i l l o f L a d i n g i n d i c a t e s t h e particular vessel on which the goods have been placed, their intended destination, and the terms for transporting the shipment to its final destination. Inland, ocean, through, and airway bill are the names given to bills of lading Q.2 Discuss the strategic management process in an MNC. (10 Marks) Answer : -Transfer pricing is the process of setting a price that will becharged 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 firmoperating internationally. Transfer pricing is determined in three ways: market basedpricing, transfer at cost and costplus pricing. The Arms Length pricing rule is used to establish the price to be charged to the subsidiary. Transfer pricing can also be defined asthe rates or prices that are utilized when selling goods or services between a parentcompany and a subsidiary or company divisions and departments that may be across manycountries.The price that is set for the exchange in the process of transfer pricing may be a rate that isreduced 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 losswithin the company. Transfer pricing is a relatively simple method of moving goods andservices among the overall corporate family. Many managers consider transfer pricing asnon-market based. The reason for transfer pricing may be internal or external.Internal transfer pricing include motivating managers and monitoring performance. Externalfactors include taxes, tariffs, and other charges.Transfer Pricing Manipulation (TPM) is used to overcome these reasons. Governmentsusually discourage TPM since it is against transfer pricing, where transfer pricing is the actof pricing commodities or services. However, in common terminology, transfer pricinggenerally refers TPM. TPM assists in saving the organisations tax by shifting accounting profits from high tax to low tax jurisdictions. It also enables to fix transfer price on a nonmarket basis and thus enables to save tax. This method facilitates in moving the taxrevenues of one country to another. A similar trend can be observed in domestic marketswhere different states try to attract investment by reducing the Sales tax rates, and thisleads in an outflow from one state to another. Therefore, the Government is trying toimplement a taxing system in order to curb tax evasion.

Q.3 A Europe based MNC wants to introduce its fruit juice drinks in India. What product strategy of international marketing do you think will be suitable for its product? (10 Marks) Q.4 Discuss the need for regional integration. (10 Marks) Ans. There are five major product strategies in international marketing. a. Product communications extension-

T h i s s t r a t e g y i s v e r y l o w c o s t a n d m e r e l y takes the same product and communication strategy into other markets. However, it can be risky if misjudgments are made. For example, CPC International believed the US consumer would take to dry soups, which dominate the European market. It did not work. b. Extended product communications adaptationIf the product basically fits the different needs or segments of a market it may need an adjustment in marketingc o m m u n i c a t i o n s o n l y . A g a i n t h i s i s a l o w c o s t s t r a t e g y , b u t d i f f e r e n t p r o d u c t functions have to be identified and a suitable communications mix developed. c. Product adaptation communications extension: The product is adapted to fit usage conditions but the communication stays the same. The assumption is that thep r o d u c t w i l l s e r v e t h e s a m e f u n c t i o n i n f o r e i g n m a r k e t s u n d e r d i f f e r e n t u s a g e conditions. d. Product adaptationcommunications adaptation-: B o t h p r o d u c t a n d communication strategies need attention to fit the peculiar need of the market e. Product inventionThis needs a totally new idea to fit the exclusive conditions of themarket. This is very much a strategy which could be ideal in a Third World situation.The development costs may be high, but the advantages are also very high.The choice of strategy will depend on the most appropriate product/market analysis andis a function of the product itself defined in terms of the function or need it serves, them a r k e t d e f i n e d i n t e r m s o f t h e c o n d i t i o n s u n d e r w h i c h t h e p r o d u c t i s u s e d , t h e preferences of the potential customers and the ability to buy the product in question,and the costs of adaptation and manufacture to the company considering these product communications approaches. In this case the Euopean MNC should undertake the P r o d u c t a d a p t a t i o n communications adaptation strategy. This is because the fruit drink is entering atonally a new market, India, whose preferences are quite dissimilar from Europe. At the same time as culturally India is different from Europe there is need for adaptation in communications also as the product will get exposed to a whole new market segment Q.5 What are the key factors affecting the recruitment of expats? (10 Marks) Answer: India is a developing country and every developing country has its ownorganisational problems. In the past decade, some Indian companies have maderemarkable progress by reaching the international platform in short time. India hastransformed from being primarily domestic players into confident global corporations. TheTATA Jaguar deal was one prominent example of an Indian global power house to acquirean internationally reputed automotive company 1. Brand India: Brand India is a phrase that describes the campaign which projectsIndia as an emerging destination for business in various fields such as informationtechnology, manufacturing, infrastructure, service sector and so on. Country names canamount to brand names and assist consumers in evaluating the products before purchasingthem 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. Theinitial market entry strategy of a company from a developing country is to offer cheaperproducts of acceptable quality, example, China and Korea. The customers of developedcountries buy

those products only on the basis of price. Brand India is comprised of a largenumber of subbrands that are relatively established. It reflects the economic reforms andliberalisation process that Indian economy has undergone. The famous brands from Indiaare Indian information technology (IT) companies such as Infosys, Wipro and Tata. Thepositive image of these companies help in changing consumer perceptions and also help inre-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 aperiod of time. It improves sales volume and profit margins. The India Brand EquityFoundation (IBEF) was established to promote brand India. 2. Government and bureaucracy: The political environment of a country influencesthe business to a large extent. The political environment includes political stability in thecountry, nature and extent of bureaucracy, ideology of government, party in power and soon. Another challenge that influences business is bureaucracy. Industrial incentives areadministered by an elaborate and expensive bureaucracy. The relationship of government tointernational business is based on the concept of sovereignty. The concept identifies thatthe nation has complete control over the international affairs. The infrastructure such asairport, 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 arevery complex and confusing. Government policy and bureaucratic culture in India do notencourage international business. Unnecessary government interference can hinderglobalisation. Government support is essential to encourage globalisation. Governmentsupport is extended in the form of policy reforms, development of infrastructure, financialmarket, R&D support and so on. Changes in government and political instability disruptbusiness. Good business thrives on predictability which is lacking in India. 3. Corporate governance: Corporate governance is a process of promotingcorporate transparency and accountability. It is set of policies that affect the way acompany is administered and controlled. Quality corporate governance is a tool for socio-economic development. Corporate governance deals with power and accountability for thesafety 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 andpractices that are followed by the corporate world. The new emerging corporate India needsguiding 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 andresponsive delivery of service. In India, corporate governance initiatives are undertaken byMinistry 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 choosebetween right or wrong. Managers make decisions based on a set of values andprinciples that are influenced by the culture of the organisation. Ethical leadership isimportant for the business to be conducted by meeting the expectations of all thestakeholders. Corporate governance is the ethical framework under which corporatedecisions are taken. Ethics is a generalised value system avoiding discrimination inrecruitment and adopting fair business practices. Business ethics provide a generalguidelines within which a management can operate. An organisation has to be ethicalbecause it has to exist in the competitive world. The varying ethical norms and socialvalues make international business environment complex. The ethical norms varyfrom country to country.

Q.6 Describe various entry strategies available to a firm when it wants to enter a foreign market. (10 Marks) The various strategies available to a firm when it enters a foreign market a r e a s follows:1. Supplying Products to Foreign Buyers: F o r e i g n p r o d u c t i o n i s n o t a l w a y s a n answer. Foreign markets can be better served by exporting, rather than by creating f o r e i g n s u b s i d i a r y i f t h e r e a r e e c o n o m i e s o f s c a l e . I f l a r g e s c a l e p r o d u c t i o n reduces unit cost, it is better to concentrate production in one place. MES is them i n i m u m r a t e o f o u t p u t a t w h i c h A v e r a g e C o s t ( A C ) i s m i n i m i z e d . I f m i n i m u m efficient scale (MES) is not achieved, then export. In other words, if there is excess capacity, why not utilize that and export outputs toothier countries? There is no point in creating another plant overseas when domestic capacity is not fully utilized. If the foreign demand exceeds the minimum efficient scale, then FDI. Figure -2 : Minimum efficient scale and FDI. 2.International Joint Ventures: JV is a business organization established by two or more companies that combines their skills and assets. A JV is formed by two businesses that conduct business in a third country. (US firm + British firm jointly operate in the Middle East) Joint venture with a local firm (GM + Shanghai Automobile Company) Joint venture may include local government (Bechtel CompanyU S ; Messerschmitt Below Bloom, Germany; Iran Oil Investment Company; National Iranian Oil Company)International JV has certain benefits. These are Large capital costs costs are too large for a single company Protection LDC governments close their borders to foreign companies Bypass protectionism. e.g.: US workers assemble Japanese parts. The finished goods are sold to the US consumers. The new venture increases production, lowers price to consumers. The new business is able to enter the market that neither parent could have entered singly. Cost reductions (otherwise, no joint ventures will be formed) Increased market power 3. Tax Policy towards MNCs: O p e r a t i n g i n m a n y c o u n t r i e s , M N C s a r e s u b j e c t t o multiple tax jurisdictions, i.e., they must pay taxes to several countries. National tax systems are exceedingly complex and differ between countries. Differences among national income tax systems affect the decisions of managers of MNCs, regarding the location of subsidiaries, financing, and the transfer prices (the prices of products and assets transferred between various units of MNCs).Multiple Tax Jurisdictions creates two

problems, overlapping and under lapping j u r i s d i c t i o n s . W h e n o v e r l a p p i n g o c c u r s , t w o o r m o r e g o v e r n m e n t s c l a i m t a x jurisdictions over the same income of an MNC. The overlapping may result in doubletaxation.Conversely, when under lapping occurs, an MNC falls between tax jurisdictions and escape taxation. Under lapping encourages tax avoidance? National governments may choose a territorial jurisdiction or national tax jurisdiction or both. 4.Transfer Pricing: MNCs try to reduce their overall tax burden. An MNC reports most of its profits in a low tax country, even though the actual profits are earned in high tax countrys p= tax rate in the parent country; t h = tax rate in the host country If t p >t h , t h e n u n d e r p r i c e i t s e x p o r t s t o t h e s u b s i d i a r y i n t h e h o s t c o u n t r y , a n d overprice its imports from the subsidiary in order to lower tax. Purpose is to manipulate prices between headquarter and the subsidiaries so that profits are highest in the low tax country. Thus, a multinational companys overall tax could be paid at the minimum of all tax rates of the countries in which it operates. 5. Taxation and Gains from Factor Mobility: It is seen that US firms invest overseasb e c a u s e t h e r e t u r n s a r e h i g h e r t h e r e . A s s u m e b o t h c o u n t r i e s h a v e t h e s a m e corporate tax rates = 40%US Canada Pretax profits 10% 12%Tax 4% 4.8%Net to investors 6% 7.2% Total Gains from domestic investment = 10% (= 4% + 6%) because tax revenues can be used for public purposes. Total Gains from foreign investment = 7.2% (because US government gets nothing).The tax revenue which could have been used to build US highways would be used by Canadian government to build their highways. A firm has to evaluate all such kinds of complex factors to fix up any strategy before choosing to enter a foreign market